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The Bullard Effect, Put Buyers Return

US TSYS
All it took to derail the month long Treasury rally were hawkish comments by Bullard that rates are not restrictive and belong above 5%, perhaps well above, quipped one desk this morning.
  • While year-end 3M futures relatively stable since Bullard spoke, 2023 levels under considerable pressure as Fed terminal rate has climbed to 5.0% from 4.93% in Jun'23 earlier vs. 5.08% pre-CPI. Fed funds implied hike for Dec'22 back to 50.9bp, Feb'23 cumulative +2.4bp to 87.3bps (84.9bp earlier) to 4.722%.
  • Derivatives update: downside insurance buyers via puts, absent since the Oct CPI miss renewed hopes for rate hike step-down in December into early 2023 (and eventually revitalizing talk of rate cuts later next year), are seeing a comeback on today's sell-off in Eurodollar and SOFR futures: Reds (Dec'23-Sep'24) -0.120-0.140.
  • Treasury options seeing return of put buyers as well (+3,800 TYH 109.5/110 put strip, 135-138).
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