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Post-LIBOR Settle Update: 3M Slips, Rate Hikes Steady

US EURODLR FUTURES
Lead quarterly EDM2 bounces off modest low to 98.23 (+0.0025) after latest 3M LIBOR set' slips -0.00272 to 1.68771% (+0.06171/wk).
  • Little change in rate hike pricing through year end, however, holding around four 50bp, while balance of Whites (EDU2-EDH3) trades -0.005-0.010, Reds through Golds (EDU3-EDH7) -0.015-0.040 w/ Golds underperforming.
  • 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 96.56 vs. Red Jun (EDM3) at 96.46. Inversion starts to flatten out (dis-invert) around Blue Sep'25-Dec'25 trading 96.97.
  • Tuesday option roundup: Short-term tactical plays via OTM calls on Tuesday market direction made the right call Monday with underlying rates bouncing off four week lows, 10Y Tsy ylds back below 3% at 2.9644% vs. 3.0621% overnight high.
  • No specific driver for the reversal, trading desks said, though there are "big short positions per JPM survey .. while we usually rally through supply," on added, citing Tsy coupon auctions that start w/ $44B 3Y notes today.
  • Carry-over call trade included 10,000 Sep Eurodollar 97.75/98.00/98.12 broken call flys and Sep 98.00 calls outright at 1.25. Volume drivers were blocked/crossed, however with 16,655 each Sep 98.00, Dec 97.50 and 98.00 call over conversions (vs. futures on 100% delta) at .25, 0.5 and 1.0 net respectively.
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