FED: Reserve Purchases Paused This Month, With Possible FIMA Angle

SOFR & Treasury options trade outlined below: Decent volumes again, rise in short term calls ahead of this morning's headline CPI inflation data, carry-over puts fading the dovish reaction as underlying pared moderate gains. Projected rate hike pricing pulling back from late Monday levels (*): Jul'26 at +4.1bp (+10.8bp), Sep'26 at +16.3bp (+24.9bp), Oct'26 at +21.6bp (+32.3bp), Dec'26 +30.7bp (+42.7bp).

• SOFR Options:
  • -4,000 SFRZ6 96.31 straddles, 44.75-45 ref 95.98
  • +5,000 SFRV6 96.50 calls, 2.5 ref 95.97
  • +12,000 SFRU6 95.87/96.00/96.12 put flys, 2.0 ref 95.97
  • Block, 10,000 SFRV6 95.81/96.00/96.18/96.37 call condors, 6.75 ref 95.975
  • +8,000 SFRM7 97.25/98.75 2x3 call spds, +7.75 ref 95.89
  • -20,000 SFRU6 95.62/95.75/95.81/95.93 put condor, 1.5-1.75 ref 96.12
  • +4,000 SFRQ6 96.12/96.18/96.25 call flys, 1.25 ref 96.125
  • -3,000 SFRZ6 96.12 straddles, 39.0 ref 95.975
  • +8,000 SFRZ6 95.75 puts, 10.0 vs. 95.965/0.32%
  • +4,000 OQZ6 97.00/97.50/98.50 1x3x3 call flys, 0.00 ref 96.00
  • -5,000 SFRZ6 95.50/95.75/96.00 put flys, 5.25 ref 95.97
  • -2,500 SFRQ6 96.25 calls, 1.5 ref 96.13
  • -2,000 SFRQ6 96.18/96.25/96.31 call flys, 1.25 ref 96.115
  • -2,000 SFRZ6 96.31 straddles, 45.0 ref 95.975
  • +6,000 SFRQ6 95.93/96.06 put spds, +2.5 ref 96.125
  • +8,000 SFRQ6 96.00/96.06/96.12/96.18 put condors, +1.25 ref 96.125
  • -4,000 SFRZ6 95.81/96.31 stranles, 19-18.5 ref 95.975
  • 2,500 SFRQ6 95.87/96.00/96.12 put flys ref 95.86
  • 10,000 SFRQ6 95.87 puts, ref 96.05
  • 5,000 SFRU6 95.87/96.00/96.12 put flys ref 96.045
  • 6,000 SFRU6 95.93/96.06/96.18/96.31 put condors ref 96.035 to -.045
  • 4,000 SFRV6  96.25/96.56 call spds ref 95.875
  • 2,500 SFRQ6 96.00/96.12/96.25 call flys ref 95.86
  • 1,500 SFRU6 95.75/95.87 put spds vs. 96.25/96.31 call spds ref 96.03
  • 3,000 SFRQ6 96.06/96.31 put spds
  • 3,000 SFRV6 95.68/95.75 put spds
• Treasury Options:
  • 9,000 TYU6 108/TYQ6 108.5 diagonal calendar spread on 2x3 basis
  • 18,000 Thursday wkly 106.5 calls, 8 (exp 7/16)
  • 11,300 Wednesday wkly FV 106.75 calls, 1 (exp 7/15)
  • 5,500 TYU6 108.5 puts, 27 ref 109-02
  • +27,158 TYQ6 108.5 puts, 11 ref 109-01 (total volume over 88k)
  • 2,800 FVQ6 106 puts vs. FVU 106/107.5 strangles
  • 20,000 USQ 109/110 put spds, 11 ref 111-00
  • 5,000 Tuesday/Wednesday wkly FV 107 call spds (one-day roll)
  • 13,900 wk3 TY 109 calls, 13 ref 108-23 (exp 7/17) total volume 26.9k from 9 low
  • over 17,800 Tuesday wkly 10Y 109 calls, 5 last - expire today, OI: 2,548
  • 8,700 Thursday wkly FV 106.5 calls, 8 ref 106-10.25 (exp 7/16)
  • 5,000 wk3 TY 108.75/109.25/109.75 call flys, 9 ref 108-20
  • 3,000 TYQ6 110/111 call spds ref 108-21
  • over 8,200 TYQ6 107.5 puts, 6 ref 108-18.5
  • 10,000 TYQ6 107.75/108 put spds vs. 110 calls, 0.0 ref 108-18.5
  • 20,000 TYQ6 109.25/109.75 call spds ref 108-18.5
  • 3,000 TYQ6 110.5 calls, 1 ref 108-18.5
  • over 6,600 TYU6 108 puts, 31 ref 108-18.5
  • over 23,500 TYQ6 108.5 puts, 20-23 ref 108-19 to -23.5

• RES 3: 95.636 - 76.4% retrace of Oct’ 25 - Jan’ 26 downleg (cont)
• RES 2: 95.472 - 61.8% retrace of Oct’ 25 - Mar’ 26 downleg (cont)
• RES 1: 95.270/95.425 - High Jun 26 / High Mar 2 (cont)
• PRICE: 95.075 @ 19:44 BST Jul 14
• SUP 1: 94.985 - Low Jun 09
• SUP 2: 94.780 - Low Mar 23 / 30 low (cont) and a key M/T support
• SUP 3: 94.664 - 76.4% retracement of the 2008 - 2020 rally 

Recent weakness in Aussie 10-yr futures appears corrective and a bullish trend sequence remains intact. However, the recent pullback does signal scope for a deeper retracement. The next support to watch is 94.985, the Jun 9 low. A break would open 94.780, the Mar 23 / 30 low on the continuation chart and a key medium-term support. For bulls, the short-term bull trigger is 95.270, the Jun 26 high.

We review the latest economic data in our preview. It includes solid labour market reports for May and June, what appears to be a strong rebound in GDP growth in Q2 after contractions in the prior 2 quarters, as well as surprisingly resilient business sentiment in the Bank’s own private sector surveys and higher but still contained core inflation. Growth has been soft overall and it’s likely the BOC will continue to suggest excess supply / labour market slack will keep a lid on inflation.

• The new quarterly Monetary Policy Report forecasts are likely to show slightly higher headline CPI for this year vs the prior edition in April. April’s MPR forecasts vs actuals (for Q1) and Bloomberg analyst consensus are in the table below.
• The updated MPR is also likely to show a downgraded 2026 GDP projection given a substantially below-expected Q1 GDP print (-0.1% Q/Q annualized vs +1.5% forecast, plus Q4 downward revision).
• But it's unlikely that the medium-term outlook sees meaningful changes and in fact should see a rebound in activity and continued progress over time to 2%. On inflation, the likely upward revision is – like for GDP – something of a mark-to-market exercise rather than a fundamental reassessment of the landscape.
• Macklem noted alongside the April Monetary Policy Report when spot oil prices were $100/bbl that "our baseline forecast assumes oil prices will come down and US tariffs will remain at the current levels. If this holds true, a policy rate close to current settings looks appropriate to support adjustment in the economy and return inflation to target."
• That included an assumption that oil prices would ease "from an average of about US$90 a barrel in the second quarter to about US$75 a barrel by the middle of next year"), "inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon." So far, so good, with Q2 prices averaging roughly $90/bbl and front-month still a shade below $80 even with the latest spike, though of course risks abound.