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Post-LIBOR Settle Update: Re-Pricing Hikes, Recession Cares

US EURODLR FUTURES

Lead quarterly EDU2 pares gains slightly, currently trading 96.695 (+0.005) as 3M LIBOR set' climbs +0.01272 to 2.19729% (+0.10143/wk) -- highest level since Aug 2019.

  • Carry-over bid out the strip: balance of Whites through Reds (EDZ2-EDM4) trading +0.035-0.075 as market gradually cools on prospect of additional 75bp hikes. Greens through Golds (EDU4-EDM7) +0.035-0.050.
  • Recession expectations rising as futures inversion creeps forward: Dec'22 currently trading 96.21 vs. Mar'23 at 96.235. Most inverted calendar spd: EDH3/EDH4 at -48.5. Interpretation: Since Wed's Senate testimony from Fed Chair Powell, futures pricing end of rate hikes has migrated from mid-2023 to end of this year.
  • Dis-inversion moves forward: currently Green Jun'25/Blue Sep'25 at 96.94 vs. mid-Blues earlier in week.
  • Wednesday option roundup: Devil's advocate plays the range. While Tuesday's option trade hedged for/anticipated correctly for a rebound in underlying rate futures, Wednesday's trade centered on the opposite. With a few exceptions, midweek flow faded the strong rally in underlying futures via put buying.
  • Trade highlights included block buys of 20k each: Dec 95.62/96.00/96.12/96.50 put condors, 8.0 and Dec 95.62/96.12/96.25/96.75 put condors, 14.0. SOFR options included buy of 6,500 SFRV2 95.75/95.93/96.06/96.25 put condors and -5,000 97.25/97.62 call spds 0.5 over SFRZ2 96.12/96.25/96.50 broken put flys vs. 96.50/0.14%.
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Lead quarterly EDU2 pares gains slightly, currently trading 96.695 (+0.005) as 3M LIBOR set' climbs +0.01272 to 2.19729% (+0.10143/wk) -- highest level since Aug 2019.

  • Carry-over bid out the strip: balance of Whites through Reds (EDZ2-EDM4) trading +0.035-0.075 as market gradually cools on prospect of additional 75bp hikes. Greens through Golds (EDU4-EDM7) +0.035-0.050.
  • Recession expectations rising as futures inversion creeps forward: Dec'22 currently trading 96.21 vs. Mar'23 at 96.235. Most inverted calendar spd: EDH3/EDH4 at -48.5. Interpretation: Since Wed's Senate testimony from Fed Chair Powell, futures pricing end of rate hikes has migrated from mid-2023 to end of this year.
  • Dis-inversion moves forward: currently Green Jun'25/Blue Sep'25 at 96.94 vs. mid-Blues earlier in week.
  • Wednesday option roundup: Devil's advocate plays the range. While Tuesday's option trade hedged for/anticipated correctly for a rebound in underlying rate futures, Wednesday's trade centered on the opposite. With a few exceptions, midweek flow faded the strong rally in underlying futures via put buying.
  • Trade highlights included block buys of 20k each: Dec 95.62/96.00/96.12/96.50 put condors, 8.0 and Dec 95.62/96.12/96.25/96.75 put condors, 14.0. SOFR options included buy of 6,500 SFRV2 95.75/95.93/96.06/96.25 put condors and -5,000 97.25/97.62 call spds 0.5 over SFRZ2 96.12/96.25/96.50 broken put flys vs. 96.50/0.14%.