FOREX: GBPUSD Consolidating Above 1.2550 Resistance

• GBP1.00bln had ben available.
• This means GBP35.637bln of the gilt remain in issue.

Active overnight trade with SOFR & Treasury call options seeing varied trade ahead of this morning's CPI inflation data (TY midcurve call buying 2 day option in decent size, appr 4.55% yld). Underlying futures gaining, TYH5 near recent highs at 107-17.5 (+6). Curves mixed, however (2s10s -1.60 at 40.539, 5s30s +1.335 at 38.909) with short end lagging support. Projected rate cuts through mid-2025 near steady, current vs. late Tuesday levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -4.9bp (-5.1bp), May'25 -10.3bp (-10.2bp), Jun'25 -17.7bp (-17.9bp), Jul'25 at -21.7bp (-21.2bp).

• SOFR Options:
  • over 13,000 SFRJ5 96.25/96.50 call spds 
  • over 7,100 SFRJ5 96.00 calls 
  • 3,600 SFRJ5 95.81/95.93/96.06 call flys ref 95.85
  • 1,650 SFRM5 95.93/96.12 call spds vs. 95.56/95.68 put spds ref 95.845
  • 3,500 0QU5/3QU5 95.25 put spds, 2.5 cr flattener (3QU sold over)
  • 1,200 SFRZ5 99/100/101 call flys ref 95.91
• Treasury Options: (Note, Tuesday's huge TYH5 108.5 call buying saw total volume of 133,834, prelim open interest +98,051 to 129,368 this morning).
  • over 31,000 wk3 TY 108.25 calls, 5 vs. 107-16.5/0.17% (expire Friday)
  • 4,000 TYG5 108/108.5 2x3 call spds ref 107-17
  • 5,000 TYH5 106 puts 22 ref 107-17
  • 4,000 wk3 TY 108/108.5 2x3 call spds ref 107-17
  • 8,000 TYH5 106/107 put spds ref 107-17
  • 4,600 TYG5 107.75/108.5 call spds, 13 ref 107-16.5
  • 3,500 TYH5 108/109.5 2x3 call spds ref 107-16.5
  • +3,000 FVH5 107/108 call spds, 5.5 ref 105-16.5
  • 2,000 TYG5 105.75/106.75 put spds trf 107-14.5
  • Block, +9,000 wk3 TY 108 calls 8 vs. 107-15.5/0.25%, more on screen at 9
  • 4,000 FVH5 106.5/107 call spds, 6.0-6.5 ref 105-17.5 to -16

Bonds remain underpinned through early NY trade, with U.S. participants reacting to the rally that followed the softer-than-expected UK CPI data.

• Bearish technical setups for core global FI intact, but today’s recovery increases the risks to those trends.
• Gilts the global outperformer at the 10-Year point following that data, with the UK curve bull steepening on the back of dovish BoE repricing.
• An uptick in benchmark European equity indices has promoted some peripheral EGB spread tightening to Bunds over the last few of hours.
• Upcoming U.S. CPI data is obviously key.
• We have seen no changes to CPI forecasts following yesterday’s PPI data (most analysts have said as much explicitly). Pre-PPI consensus for CPI per MNI medians were +0.38% M/M for headline, and +0.24% for core.