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Post-LIBOR Settle Update: Pricing More Aggressive Hikes

US EURODLR FUTURES
Lead quarterly EDM2 holding 0.030 lower at 98.065 after latest 3M LIBOR set' climbs to new 2-year high of 1.40614% (+0.07128/wk).
  • Carry-over pressure from late Tuesday as markets start to reprice potential for more aggressive rate hikes from the Fed (already at five 50bp hikes) by year end. Balance of Whites (EDU2-EDH3) trade -0.030-0.025 lower, Reds (EDM3-EDH4) steady to -0.015 while Blues through Golds (EDM5-EDH7) trade +0.005-0.010 higher.
  • Inversion holding in front Reds: Red Sep (EDU3) currently trading 96.415 vs. Red Jun (EDM3) at 96.30 -- low measure of confidence in forward policy and/or Fed managing a soft landing/avoiding recession has been priced in for months. Levels start to flatten out (dis-invert) around late Blue Mar'26/Gold Jun'26 trading around 96.93.
  • Tuesday derivatives roundup: FI derivatives saw moderate volume trade in wing options Tuesday, positioning ahead an expected 50bp rate hike from the FOMC on Wednesday.
  • Front end support in Eurodollar futures reversed in late trade, however, White pack (EDM2-EDH3) trading -0.005 in the lead quarterly to -0.050 across the balance of the strip. While market expectations of multiple 50bp hikes has expanded to 250bp by year end, the late reversal in the short end has some desks pondering a more aggressive forward guidance from the Fed may be revealed soon.
  • In the meantime, underlying rate futures rebounded from the week opener's broad based sell-off, curves bull flattening as long end rates outperformed.
  • Highlight Eurodollar option trade included a sale of Dec 97.00/97.50/98.00 put trees, one-leg over for net of 19.5. In 2Y midcurves calls, paper traded 11,900 Green Jun 97.00 calls, 8.5 ref 96.66 and 6,500 Green Jun 98.25/98.31/98.43 call trees.

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