OPTIONS: Flurry Of Sonia Call Spread And Condor Buying Wednesday

• Main EGB 10Y yields closed between 2.1-2.5bp higher today, extending Friday’s modest sell-off.
• OATs marginally led today’s sell-off, with fiscal uncertainty still weighing but OAT-Bund spreads at 79bps (just +0.2bp on the day) off last week’s highs of ~82.6bps.
• French PM Bayrou over the weekend looked to gain support ahead of the Sept. 8 confidence vote but acknowledged that talks with political parties may fail to save his government.
• BTPs meanwhile clawed back some of their earlier underperformance, having led losses into the mandate announcement for the dual 7- & 30-Year BTP syndication.
• Closing the gap, BTPs closed 0.1bp tighter vs Bunds (85.8bps). The syndication was well within the realm of possibilities, as outlined in our daily/weekly issuance documents, explaining the lack of meaningful subsequent market move.
• RXU5 trades at 129.26 (-29) off earlier lows of 129.07 that probed support at 129.15 (Aug 26 low), potentially opening a test of the bear trigger at 128.64 (Aug 15 low).
• Bear steepening seen on the German curve, with yields 1.1-2.2bp higher. 5s30s saw a fresh cycle closing high of 108.6bps. The March '19 high (111.78bp) presents the next upside target of note.
• This week's uptick in EGB supply, and the impending pricing of the EFSF syndication, provide headwinds for regional bonds.
• Gilts led losses in European hours meanwhile, with 10Y yields closing +3bps.
• Slightly softer-than-flash final manufacturing PMI data did little for the market, but probably helped prevent a breach of early London lows.
• Futures last -26 at 90.26 off lows of 90.20 (both early on and again at 1612BST), breaching initial support (90.22) but leaving key support at late May lows (90.11) untested. Bears remain in technical control.

US Treasury Secretary Scott Bessent told the Washington Examiner that President Donald Trump may declare a ‘national housing emergency’ this fall to address rising house prices. The Washington Examiner notes that there hasn’t been a national housing emergency declared since the 2008 recession. 

• In recent weeks, Trump has repeatedly blamed Fed Chair Jerome Powell for stagnation in the housing market, arguing he’s harming American homeowners and buyers by keeping rates elevated, per Bloombe
• Griffin Funding notes in a post on Trump’s housing strategy: “The Trump housing market outlook in 2025 hinges on policies spanning immigration, tariffs, land use, mortgage finance, and tax incentives.
• “[Trump’s] approach centers on several key areas that could significantly influence housing dynamics: immigration reform, federal land use policies, international trade relationships, and potential changes to government-sponsored enterprises in the mortgage industry.”
• The Wall Street Journal reported on Saturday: “Homeowners with high-rate mortgages are starting to get excited about refinancing. The average 30-year fixed mortgage rate dropped to a 10-month low of 6.56%, mortgage giant Freddie Mac said Thursday. The rate has inched down for nine of the past 12 weeks, tracking expectations that the Federal Reserve will cut its own rates next month.”

Reuters reports that Slovakian Prime Minister Robert Fico will meet President Vladimir Putin and Chinese President Xi Jinping during a visit to China this week. Fico will then travel back to Slovakia, where he will meet Ukrainian President Volodymyr Zelenskyy.

• According to an official invite list, Fico is the only leader of an EU member state slated to attend China's V-Day commemorations in Beijing on Sept. 3.
• The Moscow Times reported ahead of Fico’s trip that talks with Putin, “will likely further strain tensions between Bratislava and Brussels,” as Fico is one of the few EU leaders to maintain regular contact with Putin.
• Politico reported on August 18: “Fico has suspended official military assistance to Ukraine, criticized EU sanctions against Russia, rejected NATO membership for Kyiv, and met Vladimir Putin.”
• French Foreign Minister Jean-Noël Barrot told reporters at an EU gathering in Copenhagen on Saturday that Europe will press ahead with initiatives to penalise Moscow for slow-walking the peace process with Zelenskyy.
• Barrot said: “...Putin continues to oppose a high-level meeting with the president of Ukraine, then we will need to force by hardening sanctions — sanctions from the United States, but also European sanctions.”
• In June, a new round of sanctions on Russia’s energy and financial sectors was only possible after Fico agreed to lift a veto threatened in objection to a proposed phase-out of all Russian fossil fuels by the end of 2027.