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Post-LIBOR Settle Update: Hike Confidence Gains

US EURODLR FUTURES

Lead quarterly EDU2 holding weaker at 96.72 (-0.040) after latest 3M LIBOR set' gains +0.03700 to new 3Y high of 2.42757% (+0.13471/wk).

  • Carry-over increase in Fed hike expectations after Wed's June FOMC minutes as balance of Whites through Reds (EDZ2-EDM4) trade -0.045-0.075; Greens through Golds (EDU4-EDM7) -0.045-0.015.
  • Front end inversion continues but off Wed's lvls: Dec'22/Mar'23 currently -0.085 vs. -0.125 early Wed. Most inverted calendar spd: EDH3/EDH4 at -0.670 vs. -0.745. Inversion moderates/levels out in latter half of Greens w/ EDH5/EDM5 trading +0.010.
  • Midweek option flow centered on downside puts with a few exceptions (notable negative rate hedge for late 2023: paper bought +21,750 short Dec 100.5 calls, 1.0) after the steady sell-off in underlying futures from early session highs.
  • Trading desks reported early put buying ahead underlying rally that saw 30YY dip below 3.0% briefly: 2.9926% low, followed by sporadic rounds of put buying as 30YY climbed back to 3.1340% high in the second half.
  • Salient flow included a block buys of +20,000 Jul Eurodollar 96.25/96.75 put spds at 8.5, over 11,000 FVU 112 puts at 42 and 5,000 SFRZ2 95.50/96.00/96.25/96.75 put condors, 11.5.
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