OI Points To Sizeable Net Long Setting In SFRM4 On Thursday

The combination of yesterday’s modest uptick in most SOFR futures and preliminary OI data points to a mix of net long setting and short cover, with a notable move lower in the final Q1 unit labour cost print helping the direction of travel:

• Whites: Net long setting dominated, although that was only a result SFRM4 positioning movement on sizeable buying of that contract during the NY afternoon. Apparent short cover in SFRZ4 provided the other net OI swing of note in the pack.
• Reds: A mix of net short cover and long setting (with SFRZ5 the only contract to see net long setting in the pack) roughly offsetting.
• Greens: Net long setting dominated in net pack OI terms, mostly driven by SFRZ6, with rounds of net short cover also seen.
• Blues: A bias to net long setting in the pack, driven by SFRZ7.
• Net FOMC-dated OIS still prices a little under 50bp of ’24 cuts, with relatively tight ranges in play across U.S. FI markets on Thursday.
• This leaves U.S. STIRs comfortably away from recent hawkish extremes, which, when coupled with positioning metrics and the recent flow of labour market data, provides better two-way risk into today’s NFP release (compared to prevailing dynamics seen a few weeks ago).
• The first 25bp Fed cut is still more than fully discounted through the November FOMC, with ~80% odds of a cut through the end of the Sep FOMC currently priced.