US 10YR FUTURE TECHS: (H5) Narrowing Gap With Last Week’s High

Large Sep'25 SOFR put fly & various Mar'25 10Y Treasury put flow reported overnight. Underlying futures mildly weaker, receding from early London session highs, curves near steady to flatter. Projected rate cuts through mid-2025 running largely steady vs. late Tuesday, current: Jan'25 at -0.1bp, Mar'25 at -6.6bp, May'25 at -12.4bp, Jun'25 at -22.7bp, Jul'25 at -26.1bp vs. -25.6bp late Tuesday.

• SOFR Options:
  • 8,000 SFRH5 95.87/96.00
  • 42,000 SFRU5 95.37/95.62/95.87 put flys ref 95.975
  • 1,600 SFRZ5 95.25/95.43/95.75 broken put trees ref 96.02
• Treasury Options:
  • over 10,400 TYH5 107.5 puts, 19 last
  • over 9,300 TYH5 106.5 puts, 9 last
  • over 8,900 TYH5 108.5 puts, 41 last
  • 2,500 TYH5 103/104.5/107 broken put flys ref 108-20.5
  • over 1,900 USH5 112 puts, 51 last

Chancellor Olaf Scholz's centre-left Social Democrats (SPD) recorded its highest support in a YouGov poll since April 2023 in a poll published 22 Jan. While still trailing the main opposition centre-right Christian Democratic Union (CDU), Scholz's party secured 19% support putting it level with the far-right Alternative for Germany (AfD).

• YouGov: CDU/CSU: 28% (-2), AfD: 19% (-2), SPD: 19% (+1), Greens: 15% (+1), BSW: 6% (=), FDP: 4% (=), Linke: 4% (=). Fieldwork 17-20 Jan, chgs w. 10-14 Jan.
• Ahead of the 23 Feb election, focus is on party seat totals and whether the next coalition will be formed by two parties or whether it will have to include three to reach a majority - risking political instability as was seen in the 2021-24 'traffic light' coalition.
• The CDU are strong favourites to lead the next gov't. The SPD or the environmentalist Greens are seen as possible coalition allies, with CDU head Friedrich Merz having ruled out working with the AfD.
• The pro-business liberal Free Democrats (FDP) are polling 4-5%, putting them around the 5% electoral threshold. Merz's party would see the FDP as a closer political ally, but a two-party coalition between them will not hold a majority. If the FDP wins seats Merz would look to bring it in as a counterweight against the left-leaning SPD/Greens, or leave them in opposition in order to lead a potentially more stable two-party gov't. 

Chart 1. Federal Election Opinion Polling, % and 6-Poll Moving Average

Source: YouGov, FGW, Allensbach, Civey, Infratest dimap, Wahlkreisprognose, INSA, Forsa, GMS, Verian, MNI

• The Dollar is mostly seeing a two way price action overall, it was in the Green against all G10s, it then saw some broader selling interest as Core Bonds edged higher in early trade, mostly led by the French and Italian Bonds.
• Since Bonds futures have now pretty much reversed the early bid (Yields higher), the Dollar is now slightly more mixed, and the USDJPY is heading back up to 156.00, although it did print a 156.11 high Overnight.