SONIA OPTIONS: Put Condor buyer

• Some decent upside momentum in European Equities, no new headlines, and although we can't confirm stops, the price action would suggest so, some short are likely closing.
• Next resistance in VGU5 is at 5456.00, the June high.
• This latest leg is not Banking led, although SX7E is also at a new multi Year high.
• US Equities are now getting dragged higher.

UBS maintain their received Dec '25 ECB-dated OIS recommendation. A cumulative 23bp of rate cuts is priced over that horizon at present.

• This view places particular focus on FX levels, and they expect EUR/USD to move to 1.23, while noting that “European equities have traded 1% lower in the past month, compared to a gain of 4% in U.S. equities. This suggests a cost to further EUR strength”.
• Furthermore, they remind that “ECB Vice President de Guindos said that the ECB should try to avoid any sort of overshooting “. UBS have previously noted that “implied real policy rates in the euro area will drop below the U.S.”, but some of their clients have suggested that they only expect the ECB to cut more if EUR/USD tests levels above 1.25.
• They highlight “clients are divided on the likelihood of further ECB cuts even if long euro on further FX hedging seems a consensus trade”.

The yield tail of 0.2bp was tighter than all four previous re-openings (range 0.3-0.5bps), while the bid-to-cover ratio was in line with last month’s outing at 2.89x.

• Lowest accepted price of 98.936 above the 98.8985 pre-auction mid price.
• Limited reaction in the secondary price of the Gilt since the results were published, currently trading at 98.988.
• Similarly limited reaction in Gilt futures.