US TSYS: Late SOFR/Treasury Option Roundup
Option desks reported heavy SOFR and Treasury option position unwinds and two-way vol trades Friday, underlying futures near late session lows after Chairman Powell stated the Fed can take its time before considering any further changes to interest rates as inflation is still above target and policy uncertainty out of Washington remains high. Projected rate cuts through mid-2025 cooled significantly vs. morning levels (*) as follows: Mar'25 at -1bp (-2.7bp), May'25 at -9.4bp (-13bp), Jun'25 at -26.3bp (-31.1bp), Jul'25 at -37bp (-42.2bp). Dec'25 had priced in three 25bp cuts this morning now show -69.1bp.
- SOFR Options:
- +10,000 SFRU5 95.50/95.62/95.75 put flys 2.0 ref 96.17
- over -100,000 SFRU5 96.25 calls, 24.0 vs. 96.26 to -.255/0.50%
- -5,000 SFRZ5 96.50/96.87/97.00/97.25 call condors, 6.0 ref 96.385
- +5,000 0QJ5 96.00/96.12/96.25/96.37 put condor, 3.0 ref 96.505
- 36,000 SFRN5 96.06/96.25 2x1 put spds ref 96.265
- 11,000 SFRM5 95.62/95.68 put spds ref 96.00 to -.005
- 9,000 SFRH5 95.68/95.75 1x2 call spds ref 95.725
- 2,000 SFRU5 96.50/97.00 call spds ref 96.25
- 5,500 SFRH5 95.75/95.81 call spds
- 3,000 SFRQ5 95.75 puts ref 96.245
- 2,000 0QK5 95.50/95.75/95.87/96.12 put condors ref 96.485
- 1,500 SFRZ5 95.50/95.75 put spds
- Treasury Options:
- +20,000 TYJ5 112 calls, 9
- Block, +9,000 Monday wkly 10Y 111 call, 4
- -9,000 TYJ5 110 puts, 10
- 5,000 TYJ5 112 calls, 19 ref 111-01 to -06 (total volume over 40.8k)
- 3,500 FVJ5 107.25/109 strangles, 16 ref 107-30.25
- +7,500 TYJ5 110 puts, 13-14
- -10,000 TYJ5 110/112.5 strangles, 23, appr 6.98% implied vol
- +10,000 TYJ5 110.5 straddles, 117-119 vs. 111-03/0.32% (implied appr 6.67-.87
- 5,000 USK5 122/126 call spds ref 117-22
- 3,000 TYJ5 110/112 strangles, 29 ref 111-05.5
- 50,000 FVJ5 108.25/108.75 call spds 10 ref 108-00.75
- over 5,000 TYJ5 109/110 put spds ref 110-30 to 111-00
- 2,000 TYK5 111/112/113.5 broken call flys ref 111-00.5
- 2,500 TYJ5 108.5/109.5 put spds ref 110-28
- 4,500 wk1 TY 110/110.5 2x1 put spds, 6 ref 110-29 (exp today)
- 1,750 FVK5 109.25/110.25/111.25 call flys ref 107-27.5
- over 7,000 wk2 TY 112/113 call spds ref 111-01 to 110-28.5
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US TSYS/SUPPLY: TD Pushes Back Coupon Upsizing Start To Nov From Aug
In the wake of the unchanged issuance guidance in the February Treasury Quarterly Refunding Announcement, TD Securities has pushed back its expectation for Treasury's next coupon upsizing to November, from August previously: "While we think an August increase is reasonable given the deficit financing needs, Treasury's goal of being "regular and predictable" wouldn't make the current guidance consistent with changes in August."
- "Maintaining the language around keeping auction sizes unchanged against TBAC's recommendation might imply that Treasury is in no rush to decrease the share of bills outstanding and term out the debt further."
- November is very much firmly consensus among analysts.
- Jefferies concurs with the November timing, writing post-Refunding: "This is now the fourth straight quarter where Treasury has used the "several quarters" language, which suggests to us that they do not anticipate having to increase coupon sizes until at least the November 2025 Refunding. Treasury Secretary Bessent has been critical of his predecessor's reliance on short-term bill issuance, implying an intention to increase issuance in longer maturities. Today's announcement suggests that this term-out is going to take a long time to execute."
AUD: AUDUSD Continues Recovery But Trend Remains Bearish
Aussie was one of the better G10 performers on Wednesday helped by a better risk tone. AUDUSD rose 0.5% to 0.6286. It reached a high of 0.6297 after disappointing US services ISM data. The USD index fell 0.2%.
- AUDUSD continues to recover from Monday’s losses but the trend remains bearish. Initial support is at 0.6171, February 4 low, and resistance at 0.6305, 50-day EMA.
- The yen was the strongest in the G10 which left AUDJPY down 0.6% to 95.98. Kiwi also did well and AUDNZD is 0.1% lower at 1.1053. AUDEUR rose 0.2% to 0.6042 though and AUDGBP +0.3% to 0.5028.
- Equities were stronger with the S&P up 0.2% and Euro stoxx +0.1%. Oil prices fell sharply with Brent -1.9% to $74.75/bbl. Copper rose 2.0% but iron ore is lower around $104/t.
- Today December trade data print. The surplus is forecast to narrow to $6.5bn from $7.08bn.
USDCAD TECHS: Approaching Key Support
- RES 4: 1.5000 Psychological round number
- RES 3: 1.4948 High Mar 2003
- RES 2: 1.4814 High Apr 2003
- RES 1: 1.4600/1.4793 Round number resistance / High Feb 3
- PRICE: 1.4296 @ 16:16 GMT Feb 5
- SUP 1: 1.4270 Low Feb 5
- SUP 2: 1.4261 Low Jan 20 and a key support
- SUP 3: 1.4178 High Nov 6 ‘24
- SUP 4: 1.4120 Low Dec 11
The reversal in USDCAD from Monday’s high extended again Wednesday. For now, a move down is considered corrective and the primary uptrend remains intact. Monday’s cycle high, reinforces and strengthens bullish conditions. The break higher confirmed a resumption of the uptrend and opens 1.4814 next, the Apr 2003 high. Key support to watch lies at 1.4261, the Jan 20 low. A clear breach of this level would signal a reversal.
