OUTLOOK: Price Signal Summary - Bull Cycle In Gilts Remains Intact

SFIH6 96.40/96.50/96.60/96.70c condor, bought for 1.75 in 2k.

Better SOFR and Treasury option volumes overnight as desks restaff following Monday partial close for Columbus Day holiday. Flow mixed & varied. Underlying futures are firmer, off recent highs after climbing to highest lvls since September 17 (prior FOMC rate cut) overnight. Projected rate cut pricing has in turn risen vs. late Monday levels (*): Oct'25 at -24.6bp (-24.7bp), Dec'25 at -48.5bp (-48.1bp), Jan'26 at -61.6bp (-61bp), Mar'26 at -74.8bp (-73.5bp).

• SOFR Options:
  • 2,100 SFRZ6 96.62/97.00 2x1 put spds
  • over 8,300 SFRZ5 96.06/96.18 2x1 put spds ref 96.375
  • over 20,000 SFRZ5 96.37/96.50/96.56 broken call flys, 2.75 ref 96.38
  • 2,500 SFRZ5 96.12/96.37/96.62 calll flys ref 96.375
  • Block, +2,500 0QZ5 96.75/96.87 put spds, 3.5 ref 97.035
  • Block, -3,000 SFRZ5 96.25/96.37 put spds, 3.75 ref 96.375
  • +16,000 SFRF6 96.68/96.87/97.06 call flys, 2.5 ref 96.385/0.05%
  • -2,000 0QZ5 96.68/96.81 2x1 put spds 0.5 vs. 97.025/0.05%
  • +2,000 SFRZ5 96.06/96.12/96.18/96.25 put condors, 1.0 vs. 96.405/0.06%
  • +4,000 0QZ5 96.12/96.50 put spds, 1.0 ref 97.015/0.05%
  • +2,200 0QH6 97.12 calls, 21.5 ref 97.075
  • over 5,700 SFRF6 96.87 calls ref 96.62
  • +4,000 SFRZ5 96.50/96.56 call spds, 1.0 ref 96.38
  • 7,500 SFRZ5 96.62/97.00 2x1 put spds, 0.5 ref 97.075
  • 1,500 0QZ5 97.12/97.25/97.37/97.50 call condors ref 97.075
  • +17,000 SFRU6 96.56/96.81 2x1 put spds, 1-2 ref 96.97 to 97.005
  • +3,500 SFRM6 97.00 calls, 18.5 vs. 96.84/0.40%
• Treasury Options:
  • 1,000 USX5 115/117 put spds, 15 ref 118-20
  • 1,500 TYX5 112.75 puts, 9
  • -4,000 FVZ5 109.5 puts, 23 ref 109-25.5
  • 3,000 TYX5 114/115 call spds over 111.5 puts ref 113-13
  • 2,500 TUZ5 105 calls, 3.5 ref 104-13.75
  • -3,000 TYZ5 115 calls, 19
  • +2,500 TUX5 104.25 straddles, 16
  • +3,000 TYX5 111.5/114 strangles, 14
  • +2,000 FVX5 109.25/109.5 strangles, 31.5
  • -2,000 FVX5 109.25/109.75/110/110.75 broken call condors, 11.5
  • +2,500 TUZ5 105 calls, 3.5 ref 104-13.75
  • 6,000 TYX5 114.5 calls, 5 ref 113-11
  • +3,000 TYZ5 114 calls, 37 vs. 113-14/0.41%
  • +10,000 TYZ5 114.5 calls 6 over 111.5/112.5 put spd ref 113-09
  • -20,400 TYX5 113.5 calls, 16 ref 113-06 to -06.5
  • -9,600 TYX5 112 puts, 3 ref 113-05.5
  • 3,400 wk3 TY 113 puts, 8 ref 113-04.5

• Taylor's views on wage settlements seem to be more benign than the hawks on the MPC (who are worried about second round effects from high food prices leading to higher consumer inflation expectations, higher wage settlements and persistent inflation pressures).
• Taylor notes that "disinflation has been led by the strong reductions in wage settlements, which look to end this year in the mid-3% range, and are likely to be closer to if not below 3% into the next year. As I see it, in an economy with rising unemployment and weak demand, wage settlements will be pushed down, and wage-led domestic inflation will not re-kindle an upward spiral."
• This is a more extreme version of the view that Deputy Governor Ramsden holds.
• Note that there will be increasing evidence of pay settlements available at each upcoming MPC meeting, culminating in the Annual Pay Survey published alongside the February MPC meeting.
• Any snippets from Agents views on pay settlements will be hugely importance for monetary policy through 2026 (and could influence the Nov/Dec decisions ahead of that too).