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J.P.Morgan Like Buying Dec ‘22 1-Year Eurodollar Midcurve Puts Vs. Euribor


J.P.Morgan note that “the current inversion in the U.S. SOFR curve is at odds with Fed communication. Fed rhetoric over the past few weeks has implied that policy rates were likely to continue well past the Fed’s estimates of the long-run neutral rate and that the bar for the Fed to reverse rate hikes already in H223 is very high.”

  • “Therefore, we remain biased towards an overall bear-steepening dynamic (dis-inversion) of the Eurodollar curve.”
  • “In contrast, we believe that the bar for further rise in Euribor yields in H223 and beyond is high.”
  • “To that effect, we recommend buying Dec ‘22 1-Year midcurve Eurodollar puts versus Euribor.”
  • “Relatively cheaper Eurodollar implied volatility versus Euribor implied volatility allows us to enter the trade at a net credit.”
  • “In addition to expected relative underperformance of USD yields versus EUR, we also expect USD implieds to richen versus EUR and this further supports the trade.”
  • They recommended entering the position via longs in 96.125 Dec22 1-Year Eurodollar midcurve puts vs. versus selling 97.50 Dec ‘22 1-Year Euribor midcurve puts at a net credit of 0.06.
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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