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Post-LIBOR Settle Update: New 3M High, Hike Pricing Eases

US EURODLR FUTURES

Lead quarterly EDM2 pares back gain slightly to 98.185 (+0.005) after latest 3M LIBOR set' climbs +0.02686 to new 2Y high of 1.50486% (+0.06115wk).

  • Balance of Whites (EDU2-EDH3) trade trading +0.030-0.050, Reds through Golds (EDM3-EDH7) +0.050-0.065 w/Reds (EDM3-EDH4) narrowly outperforming as rate hike pricing cools slightly.
  • Inversion holds to front Reds (mkt measure of confidence in Fed managing a soft landing/avoiding recession): Red Sep (EDU3) currently trading 96.755 vs. Red Jun (EDM3) at 96.655. Levels start to flatten out (dis-invert) around Blue Sep'25-Dec'25 trading 97.14-.135.
  • Wednesday FI option trade recap: Difficult to draw any strong conclusions from Wednesday's mixed FI option flow: two-way wing trade for the most part, modest volumes on net as underlying rate futures gained all session to near highs at the close.
  • Steady climb in risk-off tone has 30Y bonds near highs, curves bull flattening (2s10s -6.280 at 21.671; 5s30s back inverted -2.821 at .896) amid renewed stagflation concerns.
  • Eurodollar trade appeared to turn bearish, more fading the underlying rally than building a hedge vs. steady rate hike expectations (200bp by year end). Salient trade included sale of 20,000 Green Sep 97.25/97.75 call spds at 12.75, buyer of short Aug 96.12/96.25/96.50/96.62 put condors and Dec 96.00/96.25/96.50/96.75 put condor vs. 97.00/97.25/97.50/97.75 put condor for 2.0 net.
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