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First Half SOFR/Treasury Option Roundup: Shifting Gears

US TSYS
  • SOFT, Treasury options shifting gears this morning, bullish sentiment via upside call buys, unwinding puts and conditional curve steepeners - all counter to bearish hedge theme over the past few sessions after this morning's data and Tsy refunding.
  • Underlying futures are back near mid-January levels (TYH4 112-15.5, yield sub-4% at 3.9634%) while curves are steeper despite ongoing blocks: real$ adding to large flatteners this week in lead up to this afternoon's FOMC.
  • Projected rate cuts have surged higher: March 2024 chance of 25bp rate cut -63.5% vs. -40.7% late Tuesday w/ cumulative of -17.6bp at 5.153%, May 2024 at -97.2% vs. -78.4% late Tuesday w/ cumulative -41.9bp at 4.910%, June 2024 -110.4% vs. -94.6% late Tuesday w/ cumulative -69bp at 4.639%. Fed terminal at 5.325% in Feb'24. Highlight option trades:
  • SOFR Options:
    • Block, +15,000 SFRH4 95.06/95.12 call spds 1.0 ref 94.94
    • Block, +17,000 SFRU4 96.50 calls 5.0-7.0 over 2QU4 97.12/97.50 call spds
    • 13,000 SFRG4 94.87/94.93 1x2 call spds
    • 1,500 3QH4 96.62/96.87/97.25 broken call flys
    • Block, 3,500 SFRH4 94.87/94.93/95.06 call flys, 0.5 belly over vs. 94.87/0.08%
  • Treasury Options:
    • 2,500 TYK4 115/116 call spds, 15 ref 113-03
    • 3,000 TYH4 108/111/114 call flys ref 112-02.5
    • 2,300 TYH4 111.75 puts ref 111-26
    • Over 3,000 FVH4 108.5 calls, 23 last
    • Over 4,900 FVH4 110 calls, 5 last
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