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Post-LIBOR Settle Update: Yr-End Step-Down Chances Fading

US EURODLR FUTURES

Lead quarterly Dec'22 (EDZ2) trades 94.845 (-0.005) after latest 3M LIBOR set' climbs +0.01872 to new 14Y high of 4.55029% (+0.11072/wk).

  • Balance of strip weaker as chances of year-end step-down (barring a weak NFP read this morning) continue to evaporate. Balance of Whites through Reds (EDH3-EDU4) -0.040-0.055, Greens through Golds (EDZ4-EDU7) -0.040-0.015, Golds outperforming.
  • Deferred calendar spd continue to bounce off deeper inverted levels: Mar'23/Jun'23 -0.045; Dec'22/Red Dec'23 at -0.020 vs. -0.295 early Wed, Mar'23/Red Mar'24 at -0.565 vs. -0.730. Inversion flattens out in front half of Blues.
  • Option volumes surged Thursday, better put flow on net as Tsys opened weaker, adding to Wed's post-FOMC action after Chairman Powell's hawkish rebuttal to the expected 75bp rate hike.
  • Broad based downside positioning as short end rates resumed gradually pricing in an unprecedented fifth 75bp hike in December. One 12-leg strip had paper selling 5,000 SFRH3/SFRM3/SFRU3 94.87/95.25/95.50/95.87 put condors for a total of 25.0. Other longer plays rolled out (expiry) and down (in strike) such as buyer of 10Y option package: TYZ 109/TYH 107 put spds, 24 March over.
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