US TSY OPTIONS: BLOCK: Jan'26 2Y Covered Call Spread

Major EGB futures continue to inch higher, with OATs outperforming (+38 ticks at 121.87 today).

• Initial resistance in OATZ5 is the Aug 15 opening gap at 121.95, clearance of which would expose the Aug 14 high at 122.61.
• PM Bayrou will start delivering his general policy address to the National Assembly at 1400BST/1500CET.
• It is unlikely to be eventful, more of a formality ahead of his near-inevitable ousting later this evening.
• The 10-year OAT/Bund spread is 2.5bps tighter at 76bps today. Bayrou falling to the no-confidence vote is already in the price.
• We wrote earlier this morning that market prices may already incorporate an expectation for a new administration to make budget concessions. This may limit the scope for further OAT/Bund spread widening in the aftermath of the vote.

Bund, BTP and Gilt futures also registering fresh session highs in recent trade. Market moving headline flow remains light.

• Block, 5,000 SFRZ5 95.75/95.87/96.00 put flys ref 96.37
• +10,000 SFRZ5 96.50/96.75 call spds 1.0 over 96.12 puts vs. 96.37/0.38%
• +8,000 SFRV5 96.31/96.37 call spds, 3.25 ref 96.37
• Update, 10,000 SFRV5/SFRZ5 96.50/96.62 call spd spd

Recent Euribor trades highlight divergences in opinion in the path for ECB policy rates:

• Put strips: ERZ5 97.9375 put, ERZ5 97.875 put, ERH6 97.9375 put and ERM6 97.8125 put. Paper pays 4.25 for 2k.
• ERH6 98.125/25 call spread, paper pays 4.25 for 4k