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Late SOFR/Treasury Option Roundup

US TSYS
  • SOFR, Treasury options shifted gears this morning, and continued to favor bullish sentiment via upside call buys, unwinding puts and conditional curve steepeners - all counter to bearish hedge theme over the past few sessions after the Fed left rates steady.
  • 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 cut chances are higher but post-FOMC highs: March 2024 chance of 25bp rate cut -36.8% vs. -63.5% post FOMC w/ cumulative of -9.2bp at 5.229%, May 2024 at -89.7% vs. -97.2% w/ cumulative -31.6bp at 5.005%, while June 2024 climbs to -111.4% vs. -110.4% (-94.6% late Tuesday) w/ cumulative -59.5bp at 4.726%. Fed terminal at 5.325% in Feb'24.
  • While Chairman Powell poured cold water on current chances of a rate cut at the next FOMC on March 20, late options focused on March upside: appr 50,000 SFRH4 95.00 calls at 3.5 followed by SFRH 94.87/95.00 1x2 call spds on smaller size, 10,000 SFRH4 94.87/94.93/95.00 call flys on screen Block, 10,000 SFRH4 94.75/95.25/95.75 call flys, 11.0.
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