OPTIONS: Notable Bund Put Spread, Euribor Call Condor Buying

• Fed Funds implied rates are at the high end of the week’s range for the next few meetings heading towards today’s FOMC decision, whilst meetings nearer year-end are more within range.
• We don’t anticipate any meaningful changes in the statement, though any signal that the Fed is looking seriously at “soft” survey data to assess the outlook could be significant. MNI Fed Preview here.
• Cumulative cuts from 4.33% effective: 0.5bp for today, 7.5bp Jun, 23bp Jul, 42bp Sep and 77bp Dec.
• The 42bp of cuts priced with the Sept meeting is close to pricing for July prior to Thursday’s ISM manufacturing report, to highlight the recent hawkish re-adjustment.
• SOFR futures point to an implied terminal yield of 3.15%, where it was at the NY crossover first thing. It has nudged out to SFRZ6 after months in the U6 (although recently with a few days with both U6 and Z6 yields equal). It’s technically the furthest out for the terminal since fleetingly on Feb 26 and before that mid-Dec prior to the Fed’s hawkish pivot.

More curve crosses: latest 2s/10Y ultra posted at 1220:50ET, DV01 $307,000:

• -8,333 TUM5 103-21.62, post time offer vs.
• +3,500 UXYM5 113-23.5, buy through 113-23 post time offer

The German and UK cash curves bull flattened Wednesday, with Bunds lightly outperforming Gilts. 

• There was no obvious headline trigger for the bid that began mid-morning, but strength extended through the session as equities and oil/gas benchmarks moved away from highs.
• 10-year Bund yields ended the session down 6.5bps to 2.47%, with Gilts down 5.4bps to 4.46%.
• The space largely brushed aside a Reuters sources article detailing German defence spending plans, with the piece lacking clarity on whether the touted E60bln of additional spending is for 2025 alone or split across the current parliamentary term.
• Today’s LT OAT and 5-year Gilt auctions saw solid results.
• 10-year EGB spreads to Bunds tightened through the morning, but the moves partially unwound in the afternoon alongside continued equity weakness.
• Eurozone data (strong German factory orders, weak Italian retail sales and in-line Eurozone retail sales) were not market movers.
• Tomorrow’s focus is on the BOE decision. An outcome other than a 25bp cut would be surprising but there will be a number of things to watch: any changes to the guidance and the inflation / growth forecast changes, the vote split and the introduction of new scenarios. (MNI preview here).