OPTIONS: Call Spreads Favoured In Euribor, Puts In Bunds
Friday's Europe rates/bond options flow included:
- DUG6 106.70/106.80/106.90/107.00c condor, bought for 3 in 4k.
- DUH6 106.80/107.00/107.20c fly, bought for 3.5 in 5k
- RXG6 126.50/124.50 put spread paper paid 30 vs. 127.48/49 on 6K
- RXG6 119p, bought for 1 and 1.25 in 5k.
- ERH6/J6 97.87p calendar spread, sold the April at 1.5 in 5.5k
- ERU6 98.06/98.25 call spread & 98.12/98.50 call spread vs. 97.895 (30% delta) paper paid 7.0 on 4K
- ERZ6 97.87/98.25 1x1.5 call spread vs. 97.50 puts vs. 97.84 (40% delta) paper paid 1.0 on 4K
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FED: US TSY 10Y AUCTION: NON-COMP BIDS $143 MLN FROM $42.000 BLN TOTAL
- US TSY 10Y AUCTION: NON-COMP BIDS $143 MLN FROM $42.000 BLN TOTAL
FED: Atlanta's Bostic: Fed Should Hold Rates As Inflation Risks "Urgent"
Atlanta Fed President Bostic (non-voter in 2025/26) - who announced earlier in the day he'd be retiring at the end of his term in February 2026 - explains in a speech Wednesday titled "Weighing the Risks: Why Inflation Tips the Scales" that "I view the Committee's monetary policy today as marginally restrictive and favor keeping the funds rate steady until we see clear evidence that inflation is again moving meaningfully toward its 2 percent target. By my lights, that is an appropriate position in this volatile environment. "
- This relative hawkishness is not a particularly surprising development: he'd already expressed reluctance over further easing, saying following October's decision to cut that he "eventually got behind" that decision and suggesting that he would prefer to move more slowly on rates given the lack of clarity. However he puts a finer point on his arguments in this speech.
- "The job of an FOMC participant is to confront this tension and weigh the trade-offs inherent in determining the appropriate setting for monetary policy. Right now, it is an extremely close call....but... despite shifts in the labor market, the clearer and urgent risk is still price stability."
- He cites alternative indicators available amid the federal government shutdown to make his case, including business surveys and regional Fed labor market indicators.
- He concludes "I see little to suggest that price pressures will dissipate before mid- to late 2026, at the earliest" Meanwhile, "Put simply, I'm not detecting unambiguous signals of a serious cyclical labor market downturn."
- And " If we were experiencing broad-based cyclical labor market weakness, I would expect to also see signs of broader economic softening. That's not showing up on my radar." He cites his Fed's GDP nowcast as showing 4% growth in Q3.
- "In these circumstances, moving policy near or into accommodative territory risks pumping fresh blood into the inflation beast and threatening to untether the inflation expectations of businesses and consumers. I simply do not think that is the proper trade-off we should contemplate right now."
US 10YR FUTURE TECHS: (Z5) Breaks Through Clustered Resistance
- RES 4: 114-02 High Oct 17 and the bull trigger
- RES 3: 113-29 High Oct 22
- RES 2: 113-18+ High Oct 28
- RES 1: 113-02+ High Nov 5& 7 and a key near-term resistance
- PRICE: 113-02 @ 17:27 GMT Nov 12
- SUP 1: 112-09+ Low Nov 5
- SUP 2: 112-09/06 100-dma / Low Sep 25 and a reversal trigger
- SUP 3: 112-03 Trendline support drawn from the May 22 low
- SUP 4: 111-23 50.0% retracement of the May 22 - Oct 17 bull leg
Prices rallied Wednesday, topping clustered resistance at 113-02 in the process. Clearance and a close above this mark is a bullish signal and will shift focus to the next notable resistance into 113-18+ and above. This cancels the S/T bear theme present at the beginning of the week, meaning markets need to challenge 112-06 to the downside, the Sep 25 low, and the 100-DMA, at 112-09 to weaken the outlook. Trendline support then undercuts at 112-03.
