BOC: September Cut Seen Very Likely, Higher Potential For A Second By Year-End
OIS-implied probability of a September BOC rate cut rose to around 80% following the much weaker than expected August employment data vs 56% prior, helped no doubt by the simultaneous release of a poor US jobs report that has firmed rate cut pricing. (The BOC decision precedes the Fed's on September 17 by a few hours.)
- End-2025 implied rates are set to close the session at the lowest since early June (at 2.37% vs current policy rate of 2.75%), with the cumulative 38bp of easing suggesting a second rate cut by year-end is a possibility.
- Again, the only major data between now and the September decision is the Sep 16 CPI data which probably won't shift the needle as deliberations will be basically done by then, though some analysts think it could make a difference.
- Current cumulative rate cut pricing through year end by meeting date: September 20bp (14bp pre-LFS), October 29bp (was 24bp), December 38bp (was 28bp).
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US 10YR FUTURE TECHS: (U5) Holds Firm
- RES 4: 113-23 76.4% retracement of the Sep’24 - Jan’25 sell-off
- RES 3: 113-07 76.4% retracement of the Apr 7 - 11 sell-off
- RES 2: 112-23 High May 1
- RES 1: 112-15+ High Aug 5
- PRICE: 112-03+ @ 18:39 BST Aug 6
- SUP 1: 110-19+/08+ Low Jul 24 / Low Jul 14 & 16
- SUP 2: 110-03 76.4% retracement of the May 22 - Jul 1 bull leg
- SUP 3: 109-28 Low Jun 6 and 11
- SUP 4: 109.25 Low May 27
Treasury futures remain strong on the back of the post-NFP rally - barring an erratic and quickly reversed intraday slip. Having cleared resistance into the bull trigger at 112-12+, the Jul 1 high, Treasuries have opened the May 1 high for direction at 112-23, a multi-month high. Clearance here opens retracement levels layered between 113-07 and 113-23. On the downside, key support is 110-08+, the Jul 14 and 16 low. First support lies at 110-19+, the Jul 24 low.
US: FED Reverse Repo Operation
RRP usage bounces to $91.966B this afternoon from $84.356B yesterday (lowest levels since April 25), total number of counterparties at 22. Lowest usage of the year at $54.772B on Wednesday, April 16 -- in turn the lowest level since April 2021 - compares to July 1: $460.731B highest usage since December 31.
SOFR OPTIONS: Second Half Trade, Call Volumes Remain Strong, Puts Rise
Call volumes remain strong in the second half, interest in downside put structures have risen as underlying futures remain weaker in Reds-Blues (SFRU6-SFRM9). Projected rate cut pricing gains vs. morning (*) levels: Sep'25 at -23.6bp (-22.6bp), Oct'25 at -39.9bp (-38.4bp), Dec'25 at -60.1bp (-58.3bp), Jan'26 at -71.4bp (-68.9bp).
- Block, 5,000 0QQ5 96.75 puts, 2.5 vs. 96.855/0.20%
- +50,000 0QZ5 98.00/98.37/98.50 broken 1x1x1 call flys, 2.75-30 ref 96.935
- +20,000 SFRZ5 96.25/96.75 1x2 call spds, 7.75-8.0 ref 96.27
- +8,000 SFRZ5 95.93/96.18/96.37/96.50 put condors, 0.75 ref 96.26
- +10,000 SHRH6 96.37 puts, 19.5 ref 96.48/0.42%
- +10,000 SFRQ5 95.81/95.87 put spds, 1.0 ref 95.94
