UK DMO UPDATE: Unallocated bucket larger than exp (medium/long smaller)
- That's short issuance in line with the median expectation at GBP110.9bln (median was GBP110.5bln)
- Medium issuance lower at GBP89.7bln (around GBP9bln lower than median GBP97.3bln)
- Long issuance GBP40.2bln (around GBP10bln lower than GBP50.8bln median)
- Linker issuance GBP30.9bln (marginally higher than median GBP30.5bln).
- The much bigger sector is unallocated: GBP27.5bln (expected only GBP16.6bln).
So medium/long issuance lower - but unallocated higher. And a large part of unallocated is likely to end up in mediums/longs - so it's not as stark as it first appears.
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US TSYS: Eqrly SOFR/Treasury Option Roundup
SOFR & Treasury option flow looks mixed overnight, SOFR call structure buyers fading this morning's weaker underlying futures. Projected rate cuts through mid-2025 consolidating vs. late Friday levels (*) as follows: Mar'25 at -0.5bp (-1.4bp), May'25 at -7.1bp (-8.9bp), Jun'25 at -17.3bp (-20bp), Jul'25 at -23.6bp (-26.6bp).
- SOFR Options:
- over 7,800 SFRH5 96.06 calls, 0.75 last
- -12,000 SFRJ5 95.62/95.68/95.75 put flys, 1.25
- +10,000 SFRU5 96.25/96.37 call spds, 2.0 ref 95.985
- +4,000 SFRM5 96.18/96.31/96.43/96.56 call condors, 0.5 vs. 95.885
- +4,000 0QJ5 96.31/96.62 call spds, 6.0 ref 96.135
- Treasury Options:
- +4,200 TYM5 111/113.5 call spds 2 to 3 over TYU5 104.5/107 put spds
- 2,500 FVJ5 106.25 puts, 13.5 ref 106-28
- 1,200 wk4 TY 109.5/110.25/110.5 broken put trees ref 109-16.5 (expire Fri)
STIR: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.34% (+0.01), volume: $2.400T
- Broad General Collateral Rate (BGCR): 4.32% (+0.01), volume: $922B
- Tri-Party General Collateral Rate (TCR): 4.32% (+0.01), volume: $906B
- (rate, volume levels reflect prior session)
BUNDS: Modest Increase In Odds Of Debt Brake Tweak After Die Linke Comment
Die Linke has underlined its support for debt brake reform to promote infrastructure spending, noting that reform will only be permitted if “certain conditions” are met, stressing that it is against a special fund for defence spending (in line with pre-election rhetoric).
- Die Linke also notes that it has always been in favour of abolishing the debt brake and finds it ironic that it is now the party “holding the scales” on the matter (per BBG).
- Ultimately, our political risk team believes that Die Linke's opposition to voting with the AfD and support for broader fiscal loosening is likely to mean its lawmakers do not vote down a debt brake reform amendment. However, related negotiations are unlikely to be smooth.
- Market accordingly trades in a manner that points to increased odds of debt brake reform over the last hour or so, albeit with the moves only modest at this stage.
- Long end German ASWs tighten but still operate above cycle lows.
- The German yield curve has steepened. 2s10s on track for a fresh cycle closing high, while 5s30s probe 50bp, a level not closed above since October.
- Bund futures don’t mange a retest of session lows on the move before stabilising.
