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Post-LIBOR Settle Update: That Tightening Feeling

US EURODLR FUTURES

Lead quarterly EDU2 trades -0.0175 at 96.6325 after latest 3M LIBOR set' climbs +0.01600 to new 14-year high of 2.97657% (+0.05500/wk). Lead quarterly little off late overnight low of 96.625 - as US rates sympathy move sold off after higher than expected UK CPI (+0.6% MoM; +10.1 YoY) underscored expectations of further tightening from the BoE.

  • Pressure back on in short end has market gradually pricing in chances of 75bp hike in Sep again, the prospect of protracted hikes (higher for longer) weighs on longer expirys: Balance of Whites (EDZ2-EDM3) trade -0.035-0.065), Reds through Greens (EDU3-EDM5) trade -0.070-0.080, Blues through Golds (EDU4-EDM7) -0.070-0.050, Golds outperforming.
  • Inversions: Mar'23/Jun'23 -0.085 (Dec'22/Mar'23 currently +0.015); calendar spds: EDZ2/EDZ3 at -0.460 vs. -0.520 early Tue, EDH3/EDH4 at -0.665 vs. -0.720. Inversion flattens out in Blues Mar'26/Jun'26 trading flat to +0.005.
  • Moderate to large (for summer trade) Eurodollar put spds drove Tuesday's volume, apparently ongoing position unwinds even as underlying futures traded lower on mixed housing and better than expected IP/CapU data.
    • Salient flow, 20,000 Sep 96.12/96.50/96.87 put flys, 18.5 adds to 40k on Mon at 9.25 - option desks said sale as open interest declined a near amount on each leg. As the session progressed, additional spread sales included total 20,000 Dec 95.75/96.50 put spds, 40.0 vs. 96.08/0.05%, 20,000 Dec 96.12/96.50 put spds, 24.5 vs. 96.09/0.25% and 20,000 Mar 95.75/96.25 put spds, 23.0 vs. 96.085/0.24%.
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Lead quarterly EDU2 trades -0.0175 at 96.6325 after latest 3M LIBOR set' climbs +0.01600 to new 14-year high of 2.97657% (+0.05500/wk). Lead quarterly little off late overnight low of 96.625 - as US rates sympathy move sold off after higher than expected UK CPI (+0.6% MoM; +10.1 YoY) underscored expectations of further tightening from the BoE.

  • Pressure back on in short end has market gradually pricing in chances of 75bp hike in Sep again, the prospect of protracted hikes (higher for longer) weighs on longer expirys: Balance of Whites (EDZ2-EDM3) trade -0.035-0.065), Reds through Greens (EDU3-EDM5) trade -0.070-0.080, Blues through Golds (EDU4-EDM7) -0.070-0.050, Golds outperforming.
  • Inversions: Mar'23/Jun'23 -0.085 (Dec'22/Mar'23 currently +0.015); calendar spds: EDZ2/EDZ3 at -0.460 vs. -0.520 early Tue, EDH3/EDH4 at -0.665 vs. -0.720. Inversion flattens out in Blues Mar'26/Jun'26 trading flat to +0.005.
  • Moderate to large (for summer trade) Eurodollar put spds drove Tuesday's volume, apparently ongoing position unwinds even as underlying futures traded lower on mixed housing and better than expected IP/CapU data.
    • Salient flow, 20,000 Sep 96.12/96.50/96.87 put flys, 18.5 adds to 40k on Mon at 9.25 - option desks said sale as open interest declined a near amount on each leg. As the session progressed, additional spread sales included total 20,000 Dec 95.75/96.50 put spds, 40.0 vs. 96.08/0.05%, 20,000 Dec 96.12/96.50 put spds, 24.5 vs. 96.09/0.25% and 20,000 Mar 95.75/96.25 put spds, 23.0 vs. 96.085/0.24%.