### POV, Rates have been.........>

US EURODLR OPTIONS: ### POV, Rates have been gradually pricing in a lower rate

hike probability through year end for weeks now. MNI's PINCH model puts the

chances of a hike in either the Sep 20 or Nov 1 FOMC meeting in the low single

digits, while Dec 13 chances are down to 28% from mid 40% back in July. It's

hard to get a feel for positioning by large option accts during thin/illiquid

summer trade. But in general terms, accts that built large downside (rate hike)

put insurance positions since spring have for the most part kept the positions.

A minority of accts have defended their equity at risk by "rolling up,

consolidating, and adjusting," one desk said. Large, out of the money put buys

at cabinet (Dec 82 puts for example), either "bought to fly off some short gamma

position" the desk said, or are a hedge for other balance sheet risk associated

w/higher yields. All things being equal, Dec hike has a good chance of dying on

the vine, while option accts will play the ebb/flow of OIS/FRA from now until

year end, while a showdown over debt ceiling hike is likely to spur a surge in

risk-off buying in rate futures and upside calls ahead the September 30

deadline.