EGBS: Spreads To Bunds Now Flat To Wider As Early Tightening Unwinds

SOFR/Treasury option flow mixed overnight, modest volumes with SOFR leaning towards puts, Treasuries seeing better calls. Underlying futures firmer - off late overnight highs, curves mildly steeper. Projected rate cut pricing gains slightly vs. late Monday levels (*): Dec'25 at -17.8bp (-16.4bp), Jan'26 at -26.9bp (-24.6bp), Mar'26 at -35.4bp (-32.9bp), Apr'26 at -41.9bp (-39.1bp).

• SOFR Options:
  2,000 SFRH6 96.37 puts
  2,000 SFRZ5 96.12/96.25 2x1 put spds
  +2,000 SFRX5 96.18/96.25/96.31 put trees, 3.5
  4,000 SFRX5 96.18 puts, 1.0 last
  1,500 SFRM6/0QM6 96.25/96.50 put spd spd covered, 3.0 net
  7,000 0QZ5 97.00/97.25 call spds, 5.5 vs. 96.92/0.25%
• Treasury Options:
  +1,500 TYZ5 112.5 puts, 20
  +1,200 TYG6 113 calls, 54 vs. 112-21/0.45%
  +1,500 TYZ5 113.25 calls, 15 vs. 112-22.5/0.30%
  +2,000 TYZ5 113.5/114/114.5 1x3x2 call flys, 0.0
  +1,250 TYZ5 113/113.5/114 call flys, 5 vs. 112-31.5/0.04%
  +2,000 FVZ5 110.5 calls, 2.5 vs. 109-10.5/0.09%
  +5,000 TYZ5 111.5/112.25 put spds vs. 113.75 calls, 0.0
  +2,000 TYZ5 113 calls, 23 vs. 112-26/0.44%
  +3,500 TYG6 114 calls, 35 vs. 112-25.5/0.30%

Following on from Chancellor of the Exchequer Rachel Reeves preparing the ground for tax hikes in the 26 Nov budget statement (see UK FISCAL: Reeves doesn't confirm manifesto pledges to taxes or working people) No. 10 deputy spox Tom Wells says that PM Sir Keir Starmer has told the Cabinet that the UK "will not take more risks with borrowing". 

• This could be seen as another implicit sign that, in order to try and improve public finances and boost fiscal headroom, tax hikes will be used rather than increasing the UK's debt load.
• Political pressures from the Labour backbenches have limited the gov'ts room for manoeuvre when it comes to the prospect of spending cuts to improve the finances. Despite a sizeable majority in the House of Commons, the gov't has been vulnerable to backbench rebellions on welfare spending cuts. Indeed, Starmer is supposed to have said to the Cabinet that previous gov'ts pursued austerity, "which had made things worse" and said he would not be pursuing that path. This would leave tax hikes as the only option on the table to increase fiscal headroom. 

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• President Donald Trump has no public events scheduled. White House Press Secretary Karoline Leavitt will brief reporters at 13:00 ET 18:00 GMT.
• Today is Election Day in several states. The main focus is on the New York mayoral race, gubernatorial races in New Jersey and Virginia, and a Congressional redistricting measure in California.
• It’s Day 35 of the government shutdown. The shutdown is now tied with the partial shutdown in 2018-2019 as the longest in US history. At 11:30 ET 16:30 BST today, the Senate will vote for a 14th time on the House-passed funding measure. It is expected to fail again. There is no sign of an imminent breakthrough in the stalemate, but there has been an acceleration in rank-and-file talks aimed at finding an offramp.
• A bipartisan plan is emerging that would reopen the government with a new short-term funding measure, provide assurances for Democrats that Congress will vote on ACA tax credits, and pass a three-bill appropriations minibus.
• The Supreme Court will, on Wednesday, hear arguments from the plaintiffs - a dozen Democrat-run states and a group of private businesses – and the Trump administration’s defence of President Trump’s reciprocal tariffs.
• Top administration officials reportedly cautioned Trump against greenlighting the sale of Nvidia’s Blackwell AI chips to China.
• Trump and North Korea's Supreme Leader Kim Jong Un could hold a fourth summit next year.
• Poll of the Day: Trump's approval rating drops. 

Full Article: US DAILY BRIEF