US TSYS: Late SOFR/Treasury Options Roundup: Fading Underlying Sell-Off

SOFR & Treasury options turned mixed in the second half. SOFR puts two-way while Treasury options focused on upside call skew as underlying futures extended highs and projected rate cut pricing gained vs. morning levels (*) as follows: Jun'25 steady at 0.0bp, Jul'25 at -4.6bp (-3.6bp), Sep'25 at -19.9bp (-16.6bp), Oct'25 at -33.1bp (-28.1bp), Dec'25 at -49.3bp (-43.1bp).

• SOFR Options:
  • -2,500 2QZ5 96.50 straddles, 59.5 ref 96.495
  • 10,000 SFRU5 95.62 puts, 0.75 vs. 95.865/0.05%
  • 8,000 SFRN5 95.68/95.81/95.93 put flys, 5.0 ref 95.88
  • +5,000 SFRQ5 95.62/95.75 put spds 1.62 over SFRN5 95.75 puts
  • -6,000 SFRN5 95.75 puts, 1.0
  • +4,000 SFRU5 95.50 puts, 0.5 ref 95.84
  • -3,000 2QH5 96.37 straddles 72.5 ref 96.37
  • -2,500 SFRZ5 95.25/95.50/95.75 put flys, 3.5 ref 96.07
  • +4,000 SFRZ5 97.00 calls, 6.0 ref 96.06
  • *5,000 SFRU5 95.50 puts, 0.5 ref 95.845
  • 1,700 SFRU5 95.75/95.81 2x1 put spds
  • 2,000 SFRU5 95.81/95.93/96.06 call flys
  • 3,000 SFRN5 95.37/95.62/95.75 broken put flys
  • 2,000 SFRZ5 95.56/95.68/95.81 put flys ref 96.08
  • 3,400 SFRU5 95.75 puts ref 95.85
  • 1,500 SFRQ5 95.81 puts, ref 95.845
• Treasury Options:
  • +30,000 TYQ5 109/112 call over risk reversals, 1 net vs. 110-15.5/0.50%
  • -22,500 FVU5 105.5 puts, 6 ref 107-28.5/0.10%
  • 2,400 TYN5 109/109.5/110 3x2x2 put trees re 110-16.5
  • +10,000 wk1 FV 109/110 call spds, 5
  • 5,000 TYQ 112 calls 23 ref 110-17.5, 5.84% appr implied vol
  • 1,500 TYN5 109.52/109.75 put spds
  • *2,000 TYN5 113/113.5 call spds ref 110-04.5
  • over 10,000 FVN5 107.5 puts, 14-15 ref 107-20.5
  • near 5,000 FVN5 107.5/108 strangles
  • +3,000 wk2 US 111 puts, 6-7 ref 112-14 to -17
  • Block, 8,000 TYN5 112 calls, 2 ref 110-06.5
  • 2,000 Mon wkly TY 110 puts ref 110-07.5

• RES 4: 170.47 76.4% retracement of the Jul 11 - Aug 5 2024 bear leg 
• RES 3: 167.38 2.0% 10-dma envelope
• RES 2: 166.69 High Oct 31 2024 and a key resistance        
• RES 1: 166.29 Intraday high
• PRICE: 166.14 @ 16:33 BST Jun 11 
• SUP 1: 163.78 20-day EMA
• SUP 2: 162.95 50-day EMA 
• SUP 3: 161.78 Low May 26 
• SUP 4: 161.09 Low May 23 and key support   

The trend set-up in EURJPY remains bullish and the latest rally reinforces current conditions. The cross has breached key resistance at 165.21, the May 13 high, and traded to a fresh cycle high today. This confirms a resumption of the uptrend and opens 166.69 next, the Oct 31 2024 high and a key resistance. Key short-term support lies at 161.09, the May 23 low, where a break is required to highlight a stronger reversal. First support lies at 163.78, the 20-day EMA.    

There doesn't appear to be much more clarity on PCE estimates after today's CPI report, with a wide range of expectations. CPI looks to have lowered those at least somewhat, but there appears to be a wide range of opinion for PPI inputs into PCE due tomorrow, especially the volatile ones. Recall that eight pre-CPI estimates for core PCE saw a median 0.22%/ average 0.24% M/M for May. 

• TD's initial estimate of core PCE is for 0.16% M/M (0.12% headline).
• Goldman now sees 0.18% core PCE (was 0.23% pre-CPI).
• Nomura now looks for 0.348%, down only slightly from their pre-CPI estimate of 0.367%. They note among other PCE-relevant factors: newspapers and magazines and prescription drug prices were strong in CPI and have a larger weight in core PCE, in addition to solid food service inflation which is in the core PCE price index but not CPI (as MNI noted earlier today).
• As Nomura points out, the main area to watch for PCE inputs of PPI - apart from domestic airfares which look to have increased vs a -ve reading in CPI -  is portfolio management and investment advice "(which are roughly correlated with stock prices) declined sharply in April, pushing down monthly core PCE inflation by more than 10bp. However, a sharp rebound in stock prices likely pushed up that component by 4.4% m-o-m in May, after it dropped by 6.6% in April."