CHILE: Santander Say Minutes Reveal More Dovish Tone, BCCh to Cut in June

Option desks reported modest overnight volumes for SOFR & Treasury options, flow leaning towards upside calls on net. Underlying futures steady (TYM5) to mixed, curves steeper with the short end outperforming. As such - projected rate hike pricing has gained slightly vs. late Tuesday levels (*) as follows: May'25 at -4.7bp (-4.4bp), Jun'25 at -21.2bp (-20.7bp), Jul'25 at -40.1bp (-38.4bp), Sep'25 -58.9bp (-59.6bp).

• SOFR Options:
  • 4,000 2QU5 96.25/96.75/97.25 call flys ref 96.585
  • 4,400 2QK5 97.37 calls ref 96.655
  • 2,500 0QK5 96.81/97.06/97.31 call flys ref 96.75
  • 2,200 SFRM5 95.62 puts, cab ref 95.94
  • 2,500 SFRZ5 96.25 puts ref 96.53
• Treasury Options:
  • 5,000 FVM5 108.5/109 call spds vs. 106/106.5 put spds ref 108-09.25 to -09
  • +5,800 TYK5 110/111 put spds vs. 111.75 calls, 4 net/put spd over vs. 111-08.5/0.61%
  • 3,600 FVM5 105/106 put spds ref 108-08.25
  • 2,000 USM5 117/118 call spds, 17 ref 114-27
  • 2,000 FVK5 108.5/109.25 call spds ref 108-12.5
  • 1,600 USK5 99 put ref 114-24

• In the FI space, {GE} Bund futures are trading closer to their recent highs. The trend condition is unchanged, a bull cycle remains in play and the latest pullback is considered corrective. A fresh short-term cycle high on Apr 7 reinforces a bullish theme. The contract has recently cleared 131.14, 76.4% of the Feb 28 - Mar 11 bear leg. This opens 132.56 next, the Feb 28 high. Initial firm support lies at 128.60, the Apr 9 low. A break below this level would alter the picture.
• A sharp sell-off in Gilt futures last week continues to highlight a bearish threat. The contract has breached 90.55, the Mar 27 low. Clearance of this level confirms a full reversal of the Mar 27 - Apr 7 rally. Sights are on the 90.00 handle next, briefly pierced on Apr 9. A clear break of this level would signal scope for an extension towards a key support at 88.96, the Jan 13 low on the continuation chart. Initial resistance is at 92.24, the 50.0% retracement of the Apr 7 - 9 sell-off.

US mortgage activity pulled back last week as mortgage rates unsurprisingly lurched higher again in response to higher swap rates. Expect more volatility ahead considering swings in US rate markets. 

• Composite applications fell a seasonally adjusted -8.5% last week after jumping 20% the week prior.
• It was led by refis (-12.4% after 35.3%) whilst new purchase applications saw a less volatile version of the move (-4.9% after 9.2%).
• Relative levels: composite at 57% of 2019 average, new purchases 63% and refis 48%.
• The 30Y conforming rate increased 20bp to 6.81% after a 9bp decline the week prior to 6.61% for the lowest since Oct 2024 after a recent high of 7.09% in January.
• Expect further swings in mortgage activity ahead as volatility in rates markets continues. 10Y swap rates averaged 6bp higher last week than the week prior (3.67% vs 3.61%) but included a huge range of 3.32-3.96% last week which will have complicated mortgage deals. The 10Y swap rate is currently 3.77%.