SONIA: Upside Call Spread

Latest block trades lodged at 09:56:12 London/04:56:12 NY:

• FVM5 8.4K lots blocked at 108-07.75, looks like a seller.
• USM5 2.9K lots blocked at 114-20, looks like a buyer.
• Prevailing market levels at the time of the block and subsequent price action on the 5s20s curve indicates a flattener.
• 5s20s now ~6bp flatter the day at 85.4bp vs. cycle closing highs of 96.6bp, registered on Monday.
• DV01 ~$370K.

Nordea recommend receiving 1y1y/2y1y €STR.

• They note that current pricing shows “Dec ’25 ECB implied rates at low levels that require a good deal of negative news to materialise, while the 2y1y is at quite high levels, showing modest lasting economic damage”.
• Nordea believe that “both views make sense. On the one hand, it is not hard to see scenarios where a lot of rate cuts will be needed. On the other hand, we can also subscribe to the view that damage to the Euro-area economy is likely to be modest even with the tariff increases (owing to fiscal support)”.
• However, they flag that the “curve is now stretched to the point where the roll-down will compensate for quite a lot of the curve risk. Some additional rate cuts for this year will steepen the curve and be negative for the trade. However, the curve could flatten with fewer rate cuts than currently priced and could flatten in the really bad scenarios with many rate cuts where the ECB also ends QT and outright receivers emerge further out on the curve”.

• A lower leg for the Dollar, selling interest are emerging against the EUR, CAD, CZK, SEK, Cable is also back towards the intraday high.
• Risk On tone, but also the US Tnotes now testing session high could be helping here, so worth keeping an eye on the USDJPY and the previous printed intraday low of 141.49.
• The US 10yr Yield is looking to break below this Week's printed low of 4.3287%, but next resistance in TYM5 is seen much further out, up to 111.17+.