Post-LIBOR Settle Update: 3M Benchmark Recedes

Lead quarterly EDU2 +0.015 at 96.650 - off from 96.665 after latest 3M LIBOR set' declines -0.01757 to 2.90514% (+0.03843/wk), balance of Whites (EDZ2-EDM3) trade +0.030-0.035, Reds through Blues (EDU3-EDM6) +0.030-0.005, Golds (EDU6-EDM7) lagging -0.015-0.005.

• Inversions gradually climbing off lows following Wed's flat July CPI read: Dec'22/Mar'23 at -0.035; calendar spds: EDZ2/EDZ3 at -0.595, EDH3/EDH4 at -0.745. Inversion flattens out in Blues Dec'25/Mar'26 trading flat at 97.435.
• Option trade remained decidedly bearish after July CPI read of 0.0%, Core 0.3%; Y/Y 8.5%, Core Y/Y 5.9%. Short end relief rally as Sep rate hike expectations snapped from strong 75bp conviction to 50bp (EDU2 gapped to high of 96.76 finished the session +0.080 at 96.635).
• Despite the softer inflation metric, put buyers faded the short end rally as they considered the amount of time and data yet to come before the Sep 16 FOMC.
• Happy to see the inflation metric decline, MN Fed Kashkari said during a talk at the Aspen Economic Strategy Group Wed "it doesn't change my path" laid out in June calling for a policy rate of 3.9% at the end of this year and 4.4% at the end of next year, he said. That remains true even with a recession being possible in the near term, he said.
• Salient trade some up the day: buyer of 20,000 Sep SOFR 96.68/96.75 put spreads at 1.0 later in the second half vs. 96.885-.890/0.05% delta. Meanwhile, Eurodollar options included a buy of 20,000 Nov 95.50/95.75 put spds at 4.5. Treasury options proved more mixed: two-way in 10Y and 5Y puts (-25,000 FVV 109/110 put spds, 4.5).