CROSS ASSET: 2s Lead Tick Higher In Tsy Yields, Supports USD

The recovery from lows in bonds extends after Israeli Defence Minister Katz points to further attacks on significant Iranian targets later today, as a response to the latest Iranian missile launch on Israel.

• TY, Bund & gilt futures hit fresh session highs before the rally stalls.
• No real readthrough from the comments when it comes to oil and equity markets, although the broader BBDXY edged away from session lows as Katz spoke.
• Focus now moves to the next stage of the hostilities, with both sides unwilling to discuss a ceasefire (at least publicly) at present.
• Any events surrounding Iran’s Fordow nuclear site (based under a mountain) present particular interest at this juncture.
• Meanwhile, higher odds of U.S. involvement remain a point of discussion after President Trump returned to Washington and played down the idea of ceasefire, before reportedly meeting with military advisors in the Situation Room.

• Treasury futures extend highs in the lead up to the NY open, no obvious headline driver or Block post. Intermediates draw some sell interest at highs.
• Currently, the Sep'25 10Y contract trades +9.5 at 110-25 vs. 110-26.5 high - below key resistance and its recent high of 111-14+, a Fibonacci retracement and the Jun 5 high. Clearance of this hurdle would be bullish and highlight a stronger reversal. This would open 111-30, a Fibonacci retracement.
• Curves mixed, 2s10s -.210 at 47.349, 5s30s +.957 at 93.003. 10Y yield slips to 4.4027% low.
• Focus on upcoming data: Retail Sales, Import/Export prices at 0830ET.

Option desks report better SOFR & Tsy call option flow overnight as underlying futures trade above Monday morning highs. Focus on tomorrow's FOMC annc while projected rate cut pricing gains vs. late Monday levels (*) as follows: Jun'25 at 0.0bp, Jul'25 at -3.6bp (-3.1bp), Sep'25 at -19.5bp (-17.4bp), Oct'25 at -32.6bp (-30.6bp), Dec'25 at -48.8bp (-46.4bp).

• SOFR Options
  • 2,000 0QU5 96.75/97.00/97.25 call flys ref 96.68 to -.675
  • 3,000 SFRN5 96.00/96.12/96.75 broken call trees ref 95.885
  • +13,500 SFRQ5 95.62/95.75 put spds 2.5
  • 2,000 SFRZ5 96.37/96.75 call spds vs. 0QZ5 97.25/97.50 call spds
  • +1,250 SFRZ5 96.25/96.37/96.62/96.75 call condors, 1.75 ref 96.13
  • +2,000 0QZ5 97.00/97.31 call spds, 8
• Treasury Options
  • 2,000 TYN5 110.5 straddles, 38.0
  • +2,000 FVN5 108.5 calls, 5 vs 108-03/0.24%
  • +5,000 TUQ5 103/104.125 call over risk reversals, 4 ref 103-20
  • +3,000 FVQ5 107.25/109 call over risk reversal, 1 ref 108-01.5
  • +2,500 TYU5 111.5 calls, 54 vs. 110-22/0.22%
  • +3,000 Wed wkly 111/111.25 call spds, 3 ref 110-18.5 (exp tomorrow)
  • +2,000 FVN5 108.25 calls, 7 vs. 107-31.25/0.30%