US TSYS: Late SOFR/Treasury Option Roundup: Large Two-Way Calls Post Data

European curves steepened Wednesday, with Bunds underperforming Gilts ahead of the BOE decision.

• Early trade saw modest bear steepening across the space, with German supply weighing on long-end Bunds.
• Yields began to rise in late afternoon but suddenly spiked less than 30 minutes before the European cash close on what some desks called an erroneous trade. While yields came back down, they closed well off their lows.
• German factory orders data were weaker than expected, compared with Italian industrial production which surprised to the upside and Eurozone retail sales which were largely in line. None of the data had any major market impact.
• The German curve bear steepened slightly on the day, with the UK's twist steepening. Periphery/semi-core EGB spreads closed mixed.
• Thursday's BOE decision is the calendar highlight of the week - MNI's preview is here.
• Along with the expected 25bp rate cut, focus will be
  on the vote split, the tone of the press conference, any changes to assumptions in the scenarios and any signalling ahead of September’s QT decision.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1bps at 1.918%, 5-Yr is up 2bps at 2.235%, 10-Yr is up 2.6bps at 2.65%, and 30-Yr is up 3.5bps at 3.173%.
• UK: The 2-Yr yield is down 0.5bps at 3.821%, 5-Yr is up 0.3bps at 3.959%, 10-Yr is up 1bps at 4.526%, and 30-Yr is up 2.1bps at 5.36%.
• Italian BTP spread down 0.4bps at 79.8bps / French OAT up 0.7bps at 66.6bps

Cumulative 2025 Fed rate cut pricing marginally extended to session highs (a little over 61bp, up 3bp on the day) as Fed Gov Cook notes that last week's Employment Report was "concerning" and could mark a "turning point": 

• "We just received this jobs market report and this is concerning, you know, 35,000 jobs per month over the last three months ending in July. And there were major revisions to May and June. And these revisions are somewhat typical of turning points, which again, speak to uncertainty.... We want to know not just where we've been but where we're going. So if we're at an inflection point, we want to look at data, for example, that speak to inflection points. And it's not always payrolls - the unemployment rate is still a good indicator of slack in the system."
• Nothing here to suggest she wouldn't support a 25bp rate cut at the next meeting.
• We had guessed going into July's FOMC meeting that she was one of the 8 Committee members who were in line with the "median" rate cut projection of 50bp in the June Dot Plot.

• RES 4: 152.31 High Feb 19 
• RES 3: 151.62 61.8% retracement of the Jan 10 - Apr 22 bear leg 
• RES 2: 151.21 High Mar 28 
• RES 1: 150.92 High Aug 1 
• PRICE: 147.26 @ 16:11 BST Aug 6
• SUP 1: 146.67 1.0% 10-dma envelope
• SUP 2: 146.62 Low Aug 5
• SUP 3: 146.60 50-day EMA
• SUP 4: 145.86 Low Jul 24  

USDJPY reversed sharply from Friday’s intraday high and this is allowing a short-term overbought condition to unwind. While the pullback in prices Friday may have been corrective, the break and close below 147.57, the 20-day EMA, is a concern. A clear break of this support zone would undermine the recent bull theme. A break of last week’s 150.92 high would resume the uptrend.