US TSYS: Late SOFR/Treasury Option Roundup: Large Two-Way Calls Post Data
SOFR & Treasury options saw decent two-way trade after this morning's jobs data, some chunky call unwinds and repositioning after underlying Tsy futures surged higher after this morning's lower than expected August employment data. Rate have gradually pared gains in the second half (TYZ5 +16.5 at 113-11.5 vs. 113-21.5 high) as markets continued to digest the labor data. Projected rate cuts remained well off pre-data (*) levels: Sep'25 at -28bp (-24.7bp), Oct'25 at -47.3bp (-38.6bp), Dec'25 at -69.7bp (-59bp), Jan'26 at -83.5bp (-71.1bp).
- SOFR Options:
- -10,000 0QZ5 97.00 calls, 27.5 vs. 97.135/0.60%
- +20,000 SFRU5 95.81/96.06 call spds 17.0-17.25
- -8,000 SFRU5 96.00/96.12 call spds 1.25-1.5 ref 95.9925
- -10,000 SFRV5 96.25 calls 1.0 over 0QV5 97.12 calls
- +4,000 SFRU5 95.87/96.12 call spds, 10.0
- +10,000 SFRZ5 96.25/96.31/96.50/96.56 call condors, 2.25 ref 96.355
- +10,000 SFRX5 96.00 puts, 1.25
- over 25,000 SFRU5 96.18/96.25 call spds ref 95.925
- 5,600 3QU5 97.00/97.12 call spds ref 96.83
- 1,500 SFRU5 95.87/95.75/95.81/95.87 put condor vs. 95.87/95.93/96.00/96.06 put condor
- 4,500 SFRU5 95.87/95.93 call spds ref 95.9275
- over 20,000 SFRU5 96.06/96.12 call spds ref 95.93
- +4,000 SFRZ5 96.25/96.37/96.44/96.50 broken call condors, 3.5
- 10,000 SFRZ5 96.00 calls, 29.5
- 2,000 SFRU5 95.81/95.93 put spds vs. 95.93/96.06 call spd ref 95.93
- 2,500 0QU5 96.75 puts ref 96.955
- 1,000 2QF6 97.18/97.62/97.75 broken call flys
- +2,000 0QX5 96.43/96.62/96.75/96.87 put condors, 2.5 ref 97.015
- 3,000 0QH6 97.00 puts vs. 97.00/97.37 call spd ref 97.08
- Treasury Options:
- -37,500 TYV5 113.25/114/114.75 call flys, 8 vs. 113-12.5/0.04%
- Block, -40,000 TYV5 113/114/114.25/115.25 call condors, 17 ref 112-27
- +29,000 109/109.25 put spds, 3 ref 109-22.25 (another 29k on screen - potential unwind)
- +6,400 wk2 TY 112.25 puts, 15 vs. 112-28.5/0.30%
- Block, +9,000 wk2 TY 112 puts, 10 ref 112-27
- -1,000 FVV5 110.5 calls, 12.5 vs. 109-22/0.25%
- -2,000 TUV5 104.12/104.37/104.62 call flys, 2.5
- -2,000 FVV5 109.25/109.75 3x2 combo, 3.5 net vs. 109-21.5
- over 9,400 TYV5 112.5 puts, 29-30
- 3,250 TYX5 110/111 put spds ref 112-30
- 7,450 wk2 FV 109.75 calls, 12 ref 109-21.5 to -21.75 (exp today)
- 8,000 wk2 FV 111 calls ref 109-21.75 to -22 (exp 9/12)
- +2,000 TYV5 112.5/113.5 call over risk reversal, 6 vs. 112-27/0.77%
- +40,000 TYV5 111 puts, 6 (late Thursday print)
- 2,000 TYV5 112.75/113.75/114 broken call trees ref 112-30.5
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BONDS: EGBs-GILTS CASH CLOSE: Late Sell-Off Cements German Bear Steepening
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
FED: Gov Cook Saw July Jobs Report As "Concerning", Possible "Turning Point"
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.
USDJPY TECHS: Cracks Support
- 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.
