OI Goes Against Talk Of Credit Stress Worry Following SFRZ3 Flows

The combination of yesterday’s move higher in SOFR futures and preliminary OI data points to the following net positioning swings on Wednesday:

• Net long setting in SFRZ3 resulted in a net long setting bias for the white pack, even with the rest of the whites seemingly seeing net short cover.
• Late SFRZ3 flow generated most of the interest Wednesday, with ~240K lots trading across several clips and prices quickly readjusting to pre-flow levels after selling briefly pushed the contract 1bp lower.
• Some pointed to worry re: funding stress surrounding month-end as a driver of the flow, although it was difficult to get any specific colour, outside of speculation re: CRE problems.
• OI pointing to net longs being set in the contract suggests that the initial selling may have reflected cover of an existing long position, as opposed to a fresh sign of potential funding stress.
• Still, the flow was large and represented ~21bp of OI (marked vs. Tuesday's OI).
• It was even more notable given the stage in the expiry cycle.
• In general month-end matters we note that most repo desks seem fairly calm owing to current cash levels, which they believe should comfortably absorb Treasury auction settlement and any month-end related demand.
• The reds and greens saw a bias towards net short cover, while the blues saw net longs set in pack terms.