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Post-LIBOR Settle Update: Cooler Rate Hike Pricing Moderates

US EURODLR FUTURES

Cooling rate hike pricing for the fall moderates as lead quarterly EDM2 pares gain slightly to 98.2275 (+0.010) after latest 3M LIBOR set' gains another +0.02200 to new 2Y high of 1.57486% (+0.06843/wk).

  • Balance of Whites (EDU2-EDH3) currently trading +0.030-0.045, Reds (EDM3-EDH4) +0.040-0.015, Greens-Golds (EDM4-EDM7) steady to +/-0.005.
  • Inversion holds to front Reds: low mkt measure of confidence in Fed managing a soft landing/avoiding recession has extended: Red Sep (EDU3) currently trading 96.995 vs. Red Jun (EDM3) at 96.905. Levels start to flatten out (dis-invert) around Blue Sep'25-Dec'25 trading 97.260-.245.
  • Wednesday FI option trade recap: FI option trade volumes were rather modest Wednesday, some accounts plying the sidelined in the leadup to the FOMC minutes release. Risk-on gained traction after some initial two-way trade -- Tsys held narrow range with 2s and 10s outperforming, relief rally in stocks after the minutes showed no discussion of larger rate hikes.
  • Eurodollar option trade mixed in June and short June quarterlies: early buying of some 12,500 June 98.31 calls at 1.0 and 16,500 June 98.18/98.25 put spds, while midcurves included a buy of 8,700 short Jun 96.50 puts at 2.5 and over 7,000 short Jun 97.00/97.12 call spds, 3.0 ref 96.86.
  • Treasury Options saw better buying in 5- and 10Y puts: 10,000 FVQ 107 puts at 1 and 10,000 TYN 115 puts at 2.
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