OPTIONS: Larger FX Option Pipeline

FI trades mildly firmer on modest volumes (TYM2 just over 300k) , curves mildly flatter with short end lagging (2s10s -1.90 at 31.331). Inside range on generally calm start to the new week.

• Economic data on tap:
  • Empire Manufacturing (24.6, 15) at 0830ET
  • May-16 1600 Net Long-term TIC Flows ($141.7B, --), 1600ET
  • May-16 1600 Total Net TIC Flows ($162.6B, --), 1600ET
• Scheduled FED speakers:
  
  
  • NY Fed Williams moderated discussion, no text, 0855ET
• US Tsy auctions:
  
  
  • US Tsy $45B 13W, $42B 26W bill auctions Mon at 1130ET
• Geopol risk: Russian Dep FM-FIN, SWE Joining NATO 'Mistake w/Far-Reaching Consequences': Russia's state-run RIA carries comments from Russian Deputy Foreign Minister Sergei Ryabkov stating that Finland and Sweden's decisions to join the NATO alliance is a mistake 'with far-reaching consequences'.
  
  
• Cross-Asset Roundup: Crude weaker (WTI -1.199 at 109.30); Gold weaker (-7.54 at 1804.25); SPX softer (ESM2 -10.5 at 4009.25).

Lead quarterly EDM2 trading -0.010 at 98.16 after latest 3M LIBOR set'

climbs +0.01129 to new 2Y high of 1.45500% (+0.04185 total last wk).

• Balance of Whites (EDU2-EDH3) trade steady to -0.010, Reds through Golds (EDM4-EDH7) +0.005-0.020 w/ Blues outperforming.
• Inversion holds to front Reds (mkt measure of confidence in Fed managing a soft landing/avoiding recession): Red Sep (EDU3) currently trading 96.77 vs. Red Jun (EDM3) at 96.68. Levels start to flatten out (dis-invert) around Blue Jun25-Sep'25 trading 97.04.
• Friday FI option trade recap: Volatile wk for FI option traders amid increased rate hike pricing volatility. Thursday's FI option trade remained mixed though upside call and call spread buying lead volumes as underlying Eurodollar and Tsy futures unwound Wed's multiple rate hike pricing.
  
  
• That was until Fed Chair Powell said he is prepared to consider larger than 50bp hikes in Marketplace interview late Thu as the committee adapts to "incoming data and the evolving outlook". Short end weaker while levels adjust lower (again) out the curve to reflect hawkish policy to combat inflation.
  
  
• Not really a tone change in regards to Fed policy -- but how the market tries to anticipate forward guidance in light of inflation metrics remains the challenge as Friday's option trade remained mixed but with more consistent interest in buying rate hike insurance via puts and put spreads.
• Some highlights: SOFR options: +6,300 SFRQ2 97.25/97.43/97.50/97.62 2x2x1x1 put condors, 0.75 net cr/belly over at 0950:28ET -- structure also traded 2,500 for 1.0. Loading up on downside/rate hike insurance with SFRU2 futures trading 97.65 (-0.075).