SONIA: Sizeable Net Long Cover In SFIZ6 Following BoE

Treasury & SOFR options see better call volume carry over from Tuesday, underlying futures firmer- near highs with markets awaiting FOMC minutes from the Oct meeting this afternoon. Projected rate cut pricing look steady to mildly higher vs late Tuesday levels (*): Dec'25 steady at -12bp, Jan'26 at -22.1bp (-22bp), Mar'26 at -33.4bp (-33.1bp), Apr'26 at -41.1bp (-40.1bp).

• SOFR Options:
  • +18,000 SFRZ5 96.18/96.25/96.31 call flys, 0.5 ref 96.1975
  • -2,000 0QZ5/SFRZ6 96.87/97.25 strangle spd 42.5 net/Red Dec over
  • 17,000 0QG5 97.12 calls ref 96.94
  • Block, 3,000 0QZ5 97.50/97.62 call spds 0.5 ref 96.915
  • over 10,000 SFRZ5 96.50/96.62 call spds, 0.25 ref 96.19
  • 1,000 SFRZ5 96.00/96.12/96.31 broken put flys vs. 0QZ5 96.50/96.75 put spds
  • 1,500 0QH6 96.37/96.50/96.75 broken put flys
  • +1,000 0QZ5 96.50/96.75 put spd vs. 2QZ5 96.43/96.68 put spd, 0.0 net flattener
  • 1,000 SFRZ5 96.18/96.31/96.44 2x3x1 put flys ref 96.1875
  • 6,500 SFRF6 96.43 calls ref 96.41
  • 1,000 SFRH6 96.37/96.50/96.62/96.75 call condors ref 96.41
  • 6,000 SFRZ5 96.31 calls, ref 96.1875
• Treasury Options: Reminder, Dec Tsy options expire Friday
  • 15,000 USH6 117/119/122 broken call flys
  • 2,000 FVF6 109/109.25 put spds
  • 20,000 FVF6 111/111.5/112 call trees ref 109-13.5
  • 4,500 TYZ5 114/114.5 call spds, 1 ref 112-28
  • 3,100 TYH6 114 calls ref 112-26
  • 14,000 Thu wkly TY 112.25/112.50 put spds
  • 1,000 TYZ5 113/113.5 2x3 call spds

The prospect for an expedited BoE easing cycle, the Chancellor’s apparent focus on hiking smaller taxes (where takings are more volatile than the “big 3”) and questions surrounding the leadership of the Labour Party point to ongoing steepening risks for the UK curve.

• This comes after questions surrounding the future of PM Starmer (any potential ousting could result in a meaningful change of fiscal policy alongside increased political risk premium) and Chancellor Reeves’ apparent u-turn when it comes to income tax rate hikes (along with suggestions that she is looking to shield small businesses from tax rises) have driven much of the steepening seen month-to-date.
• 2s10s trades at the highest level seen since early September, last 78bp. Next area of upside interest is located at the September year-to-date closing high (81.63bp).
• 5s30s is threatening a clean break above the September 19 closing high (142.55bp). A move through there would target the cycle closing high (151.97bp).
• The UK Budget (due next Wednesday) presents the key short-term risk event.

ERU6 98.31/98.43cs, bought for 2 in 10k.