STIR: Repo Reference Rates

Decent overnight option volumes more paired as puts interest returns following Monday's more one-sided call structure/rate cut positioning. Underlying futures mildly weaker, narrow range ahead another quiet data session, markets awaiting CPI/PPI on Thursday/Friday. Projected rate cuts for early 2024 have unwound Mon's gains: January 2024 cumulative -1.1bp at 5.318%, March 2024 chance of rate cut -57.2% vs. -63% late Monday w/ cumulative of -15.4bp at 5.175%, May 2024 chance of cut 85.6% vs. 91.9% late Monday, cumulative -36.8bp at 4.961%. Fed terminal at 5.3275% in Jan'24.

• SOFR Options:
  • Block, 2,500 SFRM4 95.25/95.75/96.25 call flys, 9.0 ref 95.335
  • Block, 6,000 94.93/95.18/95.50/95.62 broken put condors, .25
  • 5,200 0QH4 96.12/96.75 2x3 call spds ref 96.355
  • 4,000 SFRH4 95.00/95.12/95.25/95.37 call condors ref 94.905
  • 5,200 SFRZ4 94.75/95.75 2x1 put spds
  • 2,000 SFRM4 95.50/96.00 call spd vs. SFRM4 94.50/94.75 put spds
  • 8,000 SFRM4 95.50/95.87 call spd vs. SFRM4 94.62/94.87 put spds
  • 30,000 SFRG4 94.75/94.87/94.93/95.00 broken put condors
  • 2,000 SFRG4 95.00/95.12 call spds vs. 0QH4 96.56/96.68 call spds
  • over 8,700 SFRM4 95.50 calls ref 95.315/0.38%
  • 15,000 SFRH4 94.87/95.00/95.12 call flys ref 94.90 to -.905
  • 2,000 SFRM4 94.93/95.18/95.50/95.62 broken put condors ref 95.315
  • 6,000 SFRH4 94.75/94.87/94.93/95.00 broken put condors ref 94.905 to -.90
  • 4,000 SFRM4 94.62/95.00/95.37/95.50 broken put condors ref 95.32
  • 4,000 SFRM4 94.50/95.00/95.37/95.50 broken put condors ref 95.33 to -.325
• Treasury Options:
  • 1,100 USH4 118 puts vs. 132 calls on 1x2 ratio
  • 2,500 wk2 TY 109/109.75/110.5 put trees vs. wk3 TY 109.25/109.75/110.25 put trees

"The KINGDOM OF SPAIN has mandated Barclays, BBVA, Credit Agricole CIB, Deutsche Bank, J.P. Morgan and Santander for a new Obligacion del Estado syndicated 10-year Euro benchmark maturing on 30th April 2034. The transaction will be launched in the near future subject to market conditions."

From market source

• MNI had flagged this as likely this week and we look for a E10-13bln transaction tomorrow.

Little appetite to fade the largely supply-induced weakness in EGBs (as mentioned elsewhere, Tuesday will provide a day for EUR IG issuance) thus far. Bund futures hover ~10 ticks off session lows of the day as a result, last -70 at 135.35. Still, the contract has remained within the confines of Monday’s range.

• The German curve holds steeper, with benchmark bond yields 3.5-5.5bp higher on the day.
• EGB spreads to Bunds are generally flat to tighter, with some outperformance seen amongst peripherals. Dutch paper is a touch wider.