Late SOFR/Treasury Option Roundup: Rate Cut Positioning Recedes

Better volume reported in puts Wednesday after higher than expected Retail Sales dampened rate cut expectations through midyear. Heavy volume reported in underlying futures: SFRH4 contract with over 630,000, SFRM4 with 725,000. No obvious headline driver but more rate cut/unwind related after this morning's data dampens projections for the first half of 2024: January 2024 cumulative -0.6bp at 5.323%, March 2024 chance of rate cut falls to -57.2% w/ cumulative of -14.9bp at 5.180%, May 2024 no longer pricing in 25bp cut -- currently at -85.6% w/ cumulative -36.3bp at 4.966%. June 2024 still pricing in a 25bp cut, cumulative -61.5bp at 4.714%. Fed terminal at 5.315% in Feb'24. Highlight trade:

• SOFR Options:
  • 13,000 SFRU4 95.00/95.62/96.00 broken put flys
  • +10,000 SFRZ4 97.50/98.00/98.50 call trees, 1.0
  • 20,000 0QH4 97.50/97.62 call spds
  • +30,000 SFRJ4 95.43/95.68/95.93 call flys 3.0-3.5
  • 5,000 SFRH4 95.00/95.06/95.12 call trees
  • 3,000 SFRM4 95.25/95.50/95.75 put flys
  • 3,000 SFRM4 95.25/95.50/95.75 put trees, ref 95.39
• Treasury Options:
  • +4,000 TYH4 115/115.5 2x1 call strip, 20
  • over 32,000 TYH4 109 puts, 9-13
  • 4,000 FVH4 109/110/111 put flys
  • 2,000 TUH4 102.5/102.75/103 put trees ref 102-27.38
  • Block, 20,000 FVG4 108 puts, 11 ref 108-13