ECB: "*SIMKUS: DEC. MEETING OFFERS MORE DATA, BUT CAN'T RULE OUT OCT.

• The GBP 1Y1Y/2Y2Y OIS spread has pushed back below -10bp, as this month’s surge in the 1Y1Y to ~4.95% drives the belly of the forward curve firmly into negative territory, with room to extend lower.
• Despite the momentum behind this flattening move, a cushion of just over 15bp remains before the differential tests its March lows.
• With recent data and this week’s labour and CPI reports unlikely to alter expectations around the MPC’s reaction function, an unchanged 6-3 split is the most likely outcome on Thursday, but we flag that the primary wildcard sits with Lombardelli. If she votes for a hike or signals that her decision was "finely balanced," the 1Y1Y/2Y2Y spread may test levels closer to -30bp, especially against a backdrop where elevated energy prices continue to limit front-end relief.

Spain has announced it will be looking to sell a combined E5.0-6.0bln of the following at its auction this Thursday, September 17:

• the 0.70% Apr-32 Obli (ISIN: ES0000012K20)
• the 3.45% Oct-34 Obli (ISIN: ES0000012N35)
• the 3.40% Oct-36 Obli (ISIN: ES0000012S22)

SOFR & Treasury options trade outlined below: Modest volume to start the new week, slightly better call interest on net with prop accts fading last week's rise in projected rate hikes post PPI/CPI (legacy positions well hedged for hike(s)). Underlying mildly weaker, near overnight lows, 10Y yield just under 5% at 4.9793%. Projected rate hike pricing still higher vs. late Thursday levels (*) - October still fully priced: Sep'26 at +22.6bp (+21.6bp), Oct'26 at +33.4bp (+33.2bp), Dec'26 50.4bp (+49.8bp), Jan'27 60.1bp (59.5bp).

• SOFR Options
  • 1,500 0QZ6 96.50/96.75 call spds ref 95.40
  • 1,000 SFRZ6 95.81/95.93/96.06/96.18 call condors ref 95.765
  • 6,000 SFRZ6 95.31/95.43/95.81/95.93 put condors ref 95.765
  • 2,000 0QV6 95.93 calls, 1.5 ref 95.46/0.05%
  • +12,000 SFRH7 96.62 calls, 3.5 ref 95.54
  • 1,000 SFRX6 96.00/96.06/96.25/96.31 put condors ref 95.775
  • 2,775 SFRM7 95.50 straddles ref 95.425
  • +5,000 SFRH7 97.00 calls, 3.0 ref 95.56
  • 1,000 SFRH7 96.00/96.12/96.31/96.37 broken call condors ref 95.56
• Treasury Options:
  • +7,000 Mon wkly TY 106 puts, 3 ref 106-04.5 (exp today)
  • +10,000 TYV6 106.5 calls, 15 ref 106-04
  • +4,400 FVV6 104 puts, 7 ref 104-17.75
  • +1,800 FVZ6 105/106.5 call spds, 23.5 ref 104-1
  • +1,800 FVX6 105.75/106.25 call spds, 4.0 ref 104-19
  • 2,250 TYX6 106 puts 19 ref 106-07
  • -5,200 TYX6 105.5 puts, 28 ref 106-07
  • 2,000 TYV6 107 calls, 8 ref 106-04.5
  • +3,000 wk3 TY 107 calls, 4 ref 106-11