CROSS ASSET: E-minis Pressure & Gold Bid After U.S. House Passes "Megabill"

Mixed SOFR & Treasury option flow reported overnight, SOFR leaning towards low delta put structures while Treasuries see better 10Y call structures ahead the NY open. Underlying futures currently mixed, long end bouncing with curves scaling back from Monday's broad based steepening (2s10s -4.488 at 59.713). Projected rate hike pricing gain slightly vs. Thursday levels (*) as follows: May'25 steady at -3.4bp, Jun'25 at -18.3bp (-19bp), Jul'25 at -41.6bp (-40.1bp), Sep'25 -59.5bp (-59.9bp).

• SOFR Options:
  • 4,000 3QZ5 94.00/95.00 put spds ref 96.31
  • 2,000 0QN5 96.50/96.81 put spds
  • 2,000 SFRN5 95.93/96.25 put spds vs. 0QN5 96.81 puts
  • 3,000 SFRM5 SFRZ5 96.75/97.00/97.12 broken call flys ref 96.565
  • 1,500 SFRM5 96.06/96.18 call spd vs 2QM5 96.75/96.87 call spd spd
  • 1,000 2QK5 96.75/97.00 call spds vs. 96.00/96.25 put spds ref 96.70
  • 1,000 SFRK5 95.62/95.75/95.81/95.87 put condors ref 95.925
  • 1,500 SFRZ5 95.68 puts ref 96.575
• Treasury Options:
  • 2,000 FVK5 108/109/110 call flys
  • over 7,000 TYK5 111.25 calls 9-10 ref 110-21.5 to -24.5
  • 2,000 TYM5 112/113/114.5/116 call condors ref 110-17.5
  • 1,000 TYK5 109.25/109.75/110.25 put flys ref 110-19
  • over 12,000 TYK5/TYM5 112 call spds ref 110-20.5 to -21
  • 2,300 TYM5 114/116 call spds, 7 ref 110-21

J.P.Morgan note that “while the curve is clearly stretched to the steep side right now (based on empirical studies of fundamental drivers), trade and now potentially monetary policy uncertainty justifies more term premium and steeper curves, and we do not feel like we can rely on these valuation frameworks in the current environment.”

• As a result, they note that this while this divergence “would usually signal that the curve could tactically flatten here, or that markets need to price a more dovish Fed reaction function or higher inflation, we are hesitant to fade this steepening trend, even on a tactical basis”.

• +6,500 FVM5 108-07.25, buy through 108-07 post time offer at 0714:53ET, DV01 $416,000. The 5Y contract trades 108-07.25 last (-4.25)