Post-LIBOR Settle Update, Funding Stress

Lead quarterly EDH2 extending overnight low to 99.1325 (-0.025) after latest 3M LIBOR settlement surge to highest level since late April 23, 2020: +0.05786 to 0.80286% (+0.19272/wk).

• Balance of Whites (EDM2-EDZ2) -0.035-0.005, while Reds through Golds (EDH3-EDZ6) currently +0.010-0.030, recovering small portion of Wed's sell off.
  
• Funding concerns continue to heat up: front end swap spds forging wider, 2Y +2.0 at 20.75 are nearing mid-Feb highs of year of 22.62; FRA/OIS +1.51 to 35.86
• Credit Suisse strategist/contributor Zoltan Pozsar estimated earlier in wk FRA/OIS could expand to 50.0 in the near term "due to funding premiums driven by commodity prices and the market taking out Fed hikes". Pozsar adds the "higher non -Russian commodity prices get and the lower Russian commodity prices fall, the wider FRA -OIS will get."
• Meanwhile, Fed remains in blackout ahead next week's FOMC policy annc on the 16 -- Eurodollar futures pricing in uncertainty or rebound in rates as futures trade gradually higher in longer expirys: first price inversion between Red Sep'23 (97.66) and Red Dec'23 (97.705).
• Option positioning continues to target downside puts: over 120,000 Dec 97.00/97.50/98.00 put trees sold from 1.5-2.0 (one-leg over) since last Friday. Shifting to nearer Sep expiry, paper sold -30,000 Sep 97.12/97.62/98.37 put trees, 13.5 1-leg over. Trading desk chatter the put tree sales are a hedge vs. a large OTC trade where risk becomes untenable around 3% -- thus the buying of the two lower strikes funded by the one-leg sale.