BOE: Pill: Can't give "even a directional view" on impact US-UK trade agreement

SOFR & Treasury option flow centered around upside calls overnight, modest volumes so far as desks evaluate China's latest response to US raising levy to 104% yesterday with 84% tariff on US imports this morning. Underlying futures under pressure (10Y yield at 4.4367% at the moment), curves steeper but off overnight highs (2s10s currently +7.319 at 63.432 vs. 73.847 high). Projected rate cuts through mid-2025 have consolidated slightly vs. late Tuesday's levels - still pricing in a full point by year end, however. Current levels vs. late Tuesday (*) as follows: May'25 at -13.4bp (-14bp), Jun'25 at -37.9bp (-38.2bp), Jul'25 at -61.4bp (-61.6bp), Sep'25 -78.4bp (-79.3bp).

• SOFR Options:
  • Block, 3,000 SFRU5 97.50/98.50 2x3 call spds, 10.5 ref 96.50
  • 2,000 SFRH6 94.62/95.62 put spds ref 96.825
  • 2,000 SFRM5 95.75/95.93/96.18/96.38 call condors ref 96.12
  • over 8,100 SFRJ5 96.00 calls, 18.0 last ref 96.115
  • 4,500 SFRU5 96.50/97.00 call spds ref 96.435
  • 2,000 0QK5/2QK5 97.25 call spds
  • 2,000 SFRM5 96.75/97.50 call spds vs. 2QM5 97.50/98.25 call spds
  • 2,000 SFRM5 95.75/95.81/95.88 put trees ref 96.085
  • Block/screen, 13,000 SFRM5 96.50/97.25 call spds ref 96.125
  • Block, 5,000 SFRK5 95.81/95.93/96.00/96.06 broken call condors, 5.0 ref 96.155
  • Block, 4,000 SFRM5 95.62 puts, 1.0 ref 96.18
• Treasury Options:
  • 3,500 FVM5 110.5/111 call spds ref 108-07
  • 2,000 FVK5 106.25/106.5/107/107.25 put condors ref 108-04.25
  • 2,000 wk3 TY 110.75/112 strangles ref 110-22 (exp 4/17)
  • over 4,600 TYM5 112 calls, 60 ref 110-24
  • over 10,300 USK5 113 puts, 143 last
  • over 11,000 USK5 116 calls, 131 last
  • 5,200 USK5 117/120 call spds, 25 ref 114-12 to -11
  • over 6,000 TYM5 112.5 calls, 50 last ref 110-30.5 to -31
  • 1,000 TYK5 112.5/113.5/114.5/116.5 broken call condors ref 110-27
  • 1,300 FVM5 107/107.5 put spds, 13 ref 108-08
  • 2,500 TYK5 112/113 call spds ref 110-26

• GBP1.125bln have been on offer.
• This leaves GBP18.335bln of the gilt in issue.

In amongst various tariff announcements seen over the past week, US mortgage holders took the opportunity to refinance at modestly lower rates in the week to Apr 4. That’s unlikely to last though with 10Y swap rates currently 30bp higher than where they ended last week (or 16bp higher than last week’s average). 

• MBA composite applications increased 20% over the week (sa) to end three weeks of chipping away at a prior cumulative 34% jump seen in late Feb/early Mar when rates first pulled lower.
• New purchase applications increased 9.2% whilst refis jumped 35%.
• The 30Y conforming rate fell 9bps to 6.61% for its lowest since Oct 2024, continuing a decline from a recent high of 7.09% in Jan.
• It, for now, saw new purchase applications at the highest since Jan 2024 (67% of 2019 average) whilst refis are at their highest since Oct 2024 (55% of 2019 average).  
• 10Y swap rates are currently 30bp higher than where they ended last week (or 16bp higher than last week’s average) and mortgage rate spreads to swap rates have widened by about 30bps over the past month.