Post-LIBOR Settle Update: Hike Re-Pricing Moderates

Lead quarterly EDU2 pares gain, currently trading 96.695 (+0.005) after 3M LIBOR set' climbs +0.03714 to 2.23443% (+0.13857/wk) -- highest level since July 2019.

Thu's sharp rate hike repricing moderates slightly as futures trade lower out the strip: balance of Whites through Reds (EDZ2-EDM4) trading steady to -0.035-0.075, Greens through Golds (EDU4-EDM7) -0.040-0.075 w/ Golds underperforming.

• Recession expectations embedded in front end as Dec'22 (96.215) remains inverted vs. Mar'23 (96.25). Most inverted calendar spd: EDH3/EDH4 at -49.5. Interpretation: While immediate rate hikes remain (75bp new Fed baseline) since this week's testimony from Fed Chair Powell, not to mention Thu's second consecutive weak PMI data, futures pricing end of rate hikes has migrated from mid-2023 to end of this year. Meanwhile, dis-inversion holding at Green Jun'25/Blue Sep'25 at 96.97 vs. mid-Blues earlier in week.
• Thursday option roundup: FI option trade turned mixed, overall volumes light with one exception. Largest trade in SOFR: 100,000 SFRN2 96.12/96.25 conversion spd/box trade on screen, 12.5 net ref: 96.975-.99 -- new position, no open interest. One option desk said trade "just so mkt makers can hit rebate levels before month end," citing traders.
• Otherwise, trade appeared bearish on the surface with accounts either fading the continued underlying (that saw 30YY fall to 3.1438% low) or taking profits/rolling strikes. Salient trade included a buy of 6,300 Eurodollar short Jun 96.62/96.75/97.00 call trees after a sale of 4,000 Blue Sep 97.00 straddles, 58.0-57.5. Treasury 5Y call skew sale had paper selling -8,000 FVQ 111/112.75 call spds 40.5 over FVQ 110 puts .