BOC: Canadian Analysts Lean To 2026 Rate Hold, With Some Outliers (2/2)

SOFR & Treasury options shifted to low delta call buying - particularly in Jan'26 10Y calls after a slow start to the session. Underlying futures extended highs after the ADP showed a decline in jobs - futures holding narrow range since late morning, while projected rate cut hold firmer vs late Monday levels (*): Dec'25 at -16.8bp (-15.5bp), Jan'26 at -27.1bp (-25.1bp), Mar'26 at -38.3bp (-35.2bp), Apr'26 at -44.9bp (-41.3bp).

• SOFR Options: (Note Nov options expire Friday)
  • Update, over +25,000 SFRF6 96.62/96.75/97.00 2x3x1 call flys, 2.25-2.75 vs. 96.435/0.09%
  • +10,000 SFRZ5 96.31 calls, 3.5 ref 96.245
  • +4,000 SFRF6 96.43/96.62/96.75 call flys, 3.5
  • +10,000 0QZ5 97.00/97.25 call spds, 5.25 ref 96.905
  • -5,250 0QZ5 96.93/97.06 call spds, 4.0
  • -3,000 SFRX5 96.50 calls, 1.5 ref 96.25
  • +4,000 SFRZ5 96.43/96.50, 0.5 vs. 96.28/0.05%
  • Block, +5,000 0QH6 96.25/96.50 put spds, 3.5 ref 96.895
  • 1,300 SFRX5 96.18/96.25 box
  • Block, -10,000 SFRZ5 96.50/96.62 call spds, 0.25
  • Block/screen, 4,000 SFRG6 96.68/96.81/96.87/97.00 call condors, 0.75
  • 4,000 SFRZ5 96.37/96.56 call spds vs. SFRF6 96.56/96.75 call spds, 2.5 net/Jan bought over
  • +4,000 SFRZ6 96.12/96.50/96.75 broken put flys, 2.5
  • -2,000 SFRX5 96.18/96.31 strangles, 0.5
  • 9,350 SFRX 96.18 puts, .25-0.50 total volume over 17,500
  • over 8,300 SFRX5 96.25 puts
  • -6,500 SFRZ5 96.43/96.68 call spds, 0.25-0.50
• Treasury Options:
  • 2,000 USZ5 120/122 call spds 4
  • 6,100 TYZ5 117.5/120 1x2 call spds ref 113-00
  • Update over +117,000 TYF6 114 calls, 29 vs. 112-30.5 to -31.5/0.30% (open interest 51,680)
  • 1,000 TUZ5 104.5/104.62 1x2 call spds
  • 2,000 FVZ5 109.75/110/110.5/110.75 call flys ref 109-14
  • 1,250 TYZ5/TYF6 115 call calendar spds
  • 2,000 TYZ5 111.5/112 put spds, 1
  • -3,500 TYZ5 112.75 calls, 24 vs. 112-23.5/0.47%
  • +2,500 Wednesday weekly TY 112.5 puts, 1 vs. 112-26/0.28%
  • +2,500 Wednesday weekly TY 112.75 calls, 21 vs. 112-24/0.45%

• Crude prices are higher today, amid strength in oil product markets, with WTI on track for its highest close since Nov 3.
• WTI Dec 25 is up by 1.5% at $61.0/bbl.
• In the US, the House will return tomorrow to vote on the continuing resolution that could reopen the government by Friday. The bill to provide US government funding until Jan 30 passed the Senate with the support of a number of Democrats.
• For WTI futures, an upward corrective cycle remains intact for now. Price has traded through the 50-day EMA, at $60.85, signalling scope for a stronger recovery.
• Initial resistance is at $62.59, the Oct 24 high. A clear move through it would expose key resistance at $65.77, the Sep 26 high. The bear trigger is $55.96, the Oct 20 low.
• Despite the broader pressure on the USD, meanwhile, following the release of weak US ADP jobs data, spot gold has unwound earlier gains to be broadly unchanged on the day at $4,119/oz.
• There may be some short-term positioning dynamics in play here, given the 3.5% rally from last Thursday’s lows.
• From a technical perspective, the downleg for gold since Oct 20 appears to have been a correction, which has allowed an overbought condition to unwind.
• Recent gains suggest that correction is now over, with price above a key support at the 50-day EMA at $3,898.9. Initial resistance is seen at $4,161.4, the Oct 22 high, a clearance of which would refocus attention on $4,381.5, the Oct 20 high and bull trigger.

Gilts easily outperformed peers Tuesday.

• UK labour market data broadly came in on the soft side, driving an early bull steepening rally. A December BOE cut is now around 80% priced from <70% prior, helping the UK short-end strengthen (2Y yields hit a post-Aug 2024 low).
• Treasuries led a global rally in early afternoon on weekly ADP private sector payrolls data that showed a notable contraction in the 4-week period to Oct 25.
• In other data, German ZEW underperformed in both expectations and current conditions.
• BOE MPC hawk Greene reiterated her previously aired areas of focus, having no impact on the short end & gilts.
• On the day, the German curve lightly bull flattened, while the UK's held its early bull steepening.
• Periphery/semi-core EGB spreads were little changed vs Bunds.
• Wednesday's calendar includes Italian industrial production and final German CPI. We also get commentary from ECB's Schnabel and de Guindos, as well as BOE's Pill.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.4bps at 2.001%, 5-Yr is down 0.9bps at 2.259%, 10-Yr is down 1bps at 2.658%, and 30-Yr is down 0.6bps at 3.254%.
• UK: The 2-Yr yield is down 8.3bps at 3.724%, 5-Yr is down 7.8bps at 3.857%, 10-Yr is down 7.4bps at 4.387%, and 30-Yr is down 6.7bps at 5.172%.
• Italian BTP spread up 0.1bps at 74.5bps / French OAT down 0.4bps at 76.4bps