EM CEEMEA CREDIT: EMAAR: Q3

Option desks report light SOFR/Treasury call option trade overnight, leaning towards low delta puts as the US Gov shutdown continues. Underlying Tsy futures weaker, extending lows (TYZ5 112-09.5, September 28 level) projected rate cut pricing off late Monday levels (*): Oct'25 at -23.1bp (-23.7bp), Dec'25 at -44.2bp (-45.4bp), Jan'26 at -54.6bp (-55.7bp), Mar'26 at -65.4bp (-65.8bp).

• SOFR Options:
  • 3,000 SFRZ5 96.50/96.62 call spds
  • 1,000 SFRZ5 96.18/96.37/96.56 2x3x1 put flys
  • 10,000 SFRZ5 96.43/96.50/96.56 call flys
  • 4,100 SFRV5 96.31 puts, 1.25 ref 96.315
• Treasury Options:
  • 4,600 TYX5 112.5/113.5 call spds vs. 111.25 puts ref 112-11 to -10.5
  • 4,000 Tue/wkly 10Y 111.5 puts ref 112-11 (exp 10/14)
  • 5,500 wk2 US 115 puts, 4 ref 116-07
  • 1,000 wk3 FV 109.25/109.75 4x5 call spds
  • 5,400 TYZ5 109.5 puts, 4 ref 112-14 to -14.5

• Some decent selling going through in Bund and Bobl as they break the intraday lows, this is all longer end led, helping keep the curves bear steeper.
• Immediate area of interest in Bund is right here at 128.26, and a continuation through that area will open back to 127.88.
• US Tnotes on the Follow is sold in 6k, first area of intesret will come at the 4.20% Yield level, circa 112.03 in Futures.

This week's clearance of major resistance into 99.17 in AUD/JPY put the cross to new multi-month highs of 99.68 this week, accelerating the uptrend posted off the April low and putting spot within range of the top-end of the multi-month uptrend channel.

• The persistence of the uptrend exposes resistance into the 100.00 level as well as 100.46, the 61.8% retracement for the '24-'25 downleg.
• The JPY leg remains dominant for now, and Takaichi's ability to quell concern among junior coalition partners should prove key to any near-term JPY bounce and challenge to the JPY weakening bias. BoJ rate hike timing should also prove key: the fading odds for an October hike have been reflected in the cross' rise from 97.00 last week, but more assertive messaging for a December hike may mean JPY weakness is limited here out.
• This raises the risk of a correction lower in the cross, which now screens overbought on the 14-day RSI for the first time since mid-September. 98.43 and 96.86 represent the key levels on any downside correction.