Post-LIBOR Settle Update: Pricing In Chance of 100Bp Hike

Lead quarterly EDU2 remains under pressure at 96.35 (-0.035) after latest 3M LIBOR set' surges +0.22829 to new 3.5Y high of 2.74029% -- up +0.31729 total wk to level not seen since late January 2019.

• Carry-over selling after Wed's hot CPI sees Forward Fed hike expectations surge, some dealer now anticipating 100bp hike at end of month (Nomura) as balance of Whites through Reds (EDZ2-EDM4) trade -0.055-0.090, Greens through Golds (EDU4-EDM7) -0.080-0.040, Golds outperforming. Markets turn to this morning June PPI now.
• Front end inversion at recent lows: Dec'22/Mar'23 at -0.230. Most inverted calendar spds: EDZ2/EDZ3 at -0.810, EDH3/EDH4 at -0.720. Inversion starts to flatten out in latter half of Greens w/ EDH5/EDM5 trading flat (97.20).
• Lead quarterly EDU2 futures gapped lower late Wed, well past earlier CPI session lows to 96.34 (-34.5) after Atlanta Fed Bostic comments of "concerning" CPI while, "everything is in play" the Fed is "not wedded to any specific course of Fed action".
• Chances of a 100bp rate hike at the end of the month jumped from single digits to close to 75% after the move. Note, Fed goes into media blackout at midnight Friday -- going to hear more pop-up comments from Fed speakers by then.
• Participation grew thin in the second half after traders contended with heavy selling on higher than expected June CPI data as markets locked in expectations of a 75bps hike at month end. Yield curves hit 16+ year inverted lows as bonds rebounded, traded higher by midmorning. Option trade was largely mixed on call and put position unwinds followed by better 10Y call buying around midday.