EM CEEMEA CREDIT: RJHIAB: Final terms out

Option volumes off last week's frenetic pace, SOFR outpacing Treasury options so far. Trading desks note a pick-up in puts as tariff-tied rally in underlying futures stalls -- curves twist steeper (2s10s +7.346 at 40.965 vs 45.006 overnight high) with bonds trading lower. Projected rate cuts through mid-2025 have rebounded overnight, near last week's highs with first full 25bp cut still priced in for June and over a full point by year end. Current levels vs. late Friday (*) as follows: May'25 at -13.1bp (-8.6bp), Jun'25 at -35.3bp (-31.5bp), Jul'25 at -60.6bp (-56.1bp), Sep'25 -80.4bp (-75.8bp).

• SOFR Options:
  • Block 3,000 SFRU5 96.12/96.50 3x2 put spds 27.0 ref 96.52
  • 1,500 0QK5 97.50/98.00 call spds vs. 0QM5 98.00 calls
  • 12,750 SFRM5 95.62/95.75 put spds ref 96.13
  • Block/screen, 20,000 SFRK5 95.68/95.93/96.18 call flys, 9.0-9.5
  • 3,000 SFRK5 95.50/95.62/95.75 put flys ref 96.175
  • 3,000 SFRM5 96.50/97.00/97.50 call flys ref 96.195
  • 2,500 0QK5/0QM5 98.00 call spds, 2.0 ref 97.07
  • 2,000 SFRZ5 95.87/96.37 call spds ref 96.885
  • 1,500 SFRZ5/SFRH6 99.50 call spds
  • over 9,100 0QJ5 97.50/98.00 call spds ref 97.115 to -.105
• Treasury Options:
  • 3,000 TYM5 109/110/112 broken put flys ref 113-04 to -03.5
  • 2,800 TYK5 111 puts, 8 ref 113-15.5

• In the FI space, a bull cycle in Bund futures remains in play and the contract is holding on to the bulk of its recent gains. Fresh short-term cycle highs last week signal scope for a continuation of the uptrend. The contract has cleared 131.14, the 76.4% retracement of the Feb 28 - Mar 11 bear leg. Clearance of this level strengthens the bullish condition and opens 132.56, the Feb 28 high. Initial firm support to watch lies at 129.02, the 20-day EMA.
• Gilt futures maintain a firmer tone despite today’s pullback. A key resistance at 93.79, the Mar 4 high, has recently been cleared and this has been followed by a move through the 94.00 handle. The breach signals scope for a climb towards 94.75, 76.4% of the Dec 3 - Jan 13 bear leg (cont). On the downside, initial support lies at 93.01, the Mar 20 high. A firmer support is seen at 92.13, the 20-day EMA.

As markets consider the EU's retaliatory steps against the US, news this morning affirms that the UK are unlikely to meaningfully push back against US measures - an outcome that adds to the case for GBP underperformance through tariff uncertainty.

• UK PM Starmer announced that the "world has fundamentally changed" and has formally diluted electric vehicle targets for UK car production as well as potentially suggesting fiscal rules could be tweaked to combat an expected lower rate of growth. These policy actions stop well short of the Canadian, Chinese or likely EU response of counter-tariffs and restrictions - all of which carry an inflationary impulse.
• The contrasting official responses expose GBP here, suggesting inflationary pressure from UK countermeasures is low relative to the EU, and the argument for greater government support for businesses is more contained - leaving BoE pricing more subject to easing relative to the ECB.
• We noted above that EURGBP has cleared resistance to open 0.8645 and 0.8768 - meanwhile GBP/USD is meeting the 200-dma at typing (1.2813), to target 1.2784 and 1.2654, the 50% retracement for the YTD rally.