ECB: EUR STIR Options Flow More Balanced As Terminal Approaches (1/2)
With the ECB now at or close to its assumed terminal rate, recent EUR STIR options flow has been much more balanced than earlier this year (where it was dominated by demand for dovish call structures).
- A divergence in participants’ views likely reflect differing opinions on (i) the underlying strength of Eurozone domestic demand and the impact of past rate cuts, (ii) the eventual economic impact of a higher US effective tariff rate and (iii) the eventual impulse from higher German fiscal spending.
- Thursday’s communication and updated projections will provide an update on how the ECB currently assesses these drivers, and will be key in shaping any market reaction on the day.
- Popular dovish plays in recent weeks have included significant purchases of the ERM6 98.3125/98.4375 call spread, alongside other upside call structures in Z5 and H6. On a shorter-term basis, today’s flow has included a buyer of the ERU5 98.00/98.06 call spread. These options expire on Sep 15th, so essentially capture tomorrow’s ECB decision in isolation.
- However, there has also been demand for more hawkish put spreads and flies expiring through the course of next year during the past few weeks.
- Looking at options in ERU5, ERZ5, ERH6, ERM6, ERU6 and ERZ6, the 98.25 strike currently has the highest open interest, followed by the 97.9375 strike. While 98.25 strike OI is fairly evenly split between calls (60%) and puts (40%), 97.9375 is dominated by puts (90%). We note that put sales have been used to fund dovish call structures through this year, but recent increases in OI have also reflected increased demand for the hawkish put structures noted above.
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SOFR: Net Short Setting Most Prominent In Futures On Friday
OI data points to a slight bias towards net short setting across much of the SOFR futures strip on Friday, with pockets of net long cover also seen.
- Note the only exception to those positioning swing directions came via apparent modest net short cover in the very front (SFRM5), with the strip twist steepening on the day.
| 08-Aug-25 | 07-Aug-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRM5 | 1,217,076 | 1,217,307 | -231 | Whites | +7,877 |
SFRU5 | 1,270,461 | 1,267,584 | +2,877 | Reds | +6,903 |
SFRZ5 | 1,371,711 | 1,377,023 | -5,312 | Greens | +4,943 |
SFRH6 | 1,053,918 | 1,043,375 | +10,543 | Blues | +4,683 |
SFRM6 | 882,314 | 880,401 | +1,913 |
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SFRU6 | 846,090 | 853,619 | -7,529 |
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SFRZ6 | 958,518 | 959,038 | -520 |
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SFRH7 | 732,776 | 719,737 | +13,039 |
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SFRM7 | 803,435 | 798,891 | +4,544 |
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SFRU7 | 580,107 | 579,235 | +872 |
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SFRZ7 | 517,699 | 515,922 | +1,777 |
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SFRH8 | 331,959 | 334,209 | -2,250 |
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SFRM8 | 263,039 | 262,305 | +734 |
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SFRU8 | 206,242 | 205,282 | +960 |
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SFRZ8 | 219,525 | 216,743 | +2,782 |
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SFRH9 | 152,941 | 152,734 | +207 |
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US TSYS: Summer Overnight Volumes, Trump Press Conference Headlines Docket
- Treasuries are mildly firmer after a late open with a Japan holiday, with benchmark tenors within Friday’s range.
- They see mixed European spillover, with Gilts outperforming as they retrace losses last week whilst EGBs underperform.
- With such a quiet docket, expect headlines/flow to dominate proceedings with tomorrow’s CPI report looming large.
- Today’s main scheduled event is President Trump’s press conference at 1000ET, with the focus set to be on law enforcement in the District of Columbia but always with scope for discussions on wide-ranging topics.
- Some areas worth watching: White House administration to issue an executive order clarifying gold tariffs in “the near future”, announcement of the new BLS commissioner due after Trump fired McEntarfer after the weak July payrolls report, and geopol-related headlines ahead of Friday’s Trump-Putin meeting in Alaska.
- Cash yields are 1-5-2bp lower from Friday’s close.
- TYU5 trades at 11-29+ (+03) on extremely thin cumulative volumes of 145k. It holds its ground, with resistance seen at 112-15+ (Aug 5 high) and support at 110-19+ (Jul 24 low).
- Data: None scheduled
- Fedspeak: None scheduled
- Bill issuance: US Tsy to sell $82B 13-W, $73B 26-W bills (1130ET)
- Politics: Trump press conference on law enforcement (1000ET)
BONDS: EGBs Underperform Peers
EGBs lead the pullback from session highs seen over the past couple of hours, with both Tsys & gilts outperforming Bunds on the day.
- This is presumably owing to Europe’s sensitivity to inflation linked to the Russia-Ukraine conflict, as the market takes a more sanguine outlook on the prospect for a breakthrough re: a Russia-Ukraine ceasefire.
- A related uptick from session lows in crude oil weighs on wider core global FI.
