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Post-LIBOR Settle Update: Forward Hike Pricing Moderating

US EURODLR FUTURES

Lead quarterly EDU2 trading strong at 96.790 (+0.060), shrugging off latest 3M LIBOR set' +0.00800 to new 3Y high of 2.28514% (+0.05071/wk).

  • Forward rate hike expectations continue to moderate as balance of Whites (EDZ2-EDM3) gaining +0.100-0.085, Reds through Golds (EDU3-EDM7) +0.080-0.040 w/ Golds underperforming.
  • Recession expectations priced in front end: Mar'23/Jun'23 extends inversion to -0.155. Most inverted calendar spd: EDH3/EDH4 extends to -0.600 vs. -0.445 Tue.
  • Wednesday option roundup: Midweek FI option volume continued to thin in the lead-up to the extended 4th of July holiday weekend (early 1300ET close Friday, Monday closed). Carry-over interest in downside puts continued (with one notable exception in SOFR options) fading the rally in underlying futures on the day.
  • Salient Eurodollar trade included buy of over 50,000 Dec 96.00/96.50 put spds at 26.0, while paper paid 12.5 for +5,000 short Aug 95.87/96.37 put spds.
  • Treasury options included carry-over buy of 8,500 TYQ 113/114 put spds, 4 vs 117-11 adding to +10,000 bought Tuesday, while Block buy of 7,500 USU2 137 puts, 303 vs. 136-24/0.50%.
  • SOFR options upside insurance trade had paper buy 10,000 SFRZ2 97.50/97.75 call spds, 3.0 vs. 96.65/0.05%.
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