STIR FUTURES: SOFR Under Pressure

We've just published our latest Europe Pi positioning analysis - PDF: MNI-PI12022025.pdf

• Structural positioning across most European futures contracts remains relatively flat, with most looking similar to our last full Europe Pi update on Jan 28. Again, this contrasts with longer-leaning positioning at the very end of 2024.
• BTP and OAT stand out for being long and short, respectively, with Buxl (short) the lone German contract not in flat territory.
• We continue to see longs reduced and shorts set across contracts, including over the most recent week of trade.
   

Overnight SOFR & Treasury option flow looks mixed, pick up in SOFR calls ahead of this morning's key CPI inflation data. Underlying futures near overnight lows, curves adding slightly to yesterday's steepening (2s10s +.172 at 24.740). Projected rate cuts through mid-2025 look steady to mildly softer vs. late Tuesday levels (*) as follows: Mar'25 at -0.7bp (-1.4bp), May'25 at -6.3bp, Jun'25 at -13.9bp (-14.8bp), Jul'25 at -18.9bp (-19.6bp).

• SOFR Options:
  • Block, 2,500 SFRJ5 95.62/95.75 put spds ref 95.805
  • 11,500 SFRZ5 96.00 calls
  • 4,100 SFRM5 95.00/95.56/95.62 broken put trees ref 95.81
  • 4,000 SFRM5 95.75/96.00 call spds ref 95.81
  • 5,000 SFRZ5 96.18/97.18 call spds ref 95.975
  • 3,500 SFRH5 96.00 calls, 0.5
  • 2,900 SFRG5 95.68 puts, 0.5
• Treasury Options:
  • 2,400 FVJ5 105/106 put spds vs. 107.25 calls ref 106-12
  • 8,000 TYH5 106/107 put spds ref 108-28 to -28.5
  • 2,000 USJ5 108 puts, 8 ref 114-18
  • 5,800 TYH5 107.5 puts, 3 ref 108-29.5
  • 30,000 TYH5 110.5 calls, 3 total volume over 33k
  • over 18,600 TYH5108.5 puts, 14 last
  • over 6,000 TYH5 110 calls, 5 ref 108-29

• In the FI space, Bund futures remain in a bull cycle for now, despite this week’s pullback. Price has recently cleared both the 20- and 50-day EMAs. The break higher confirms a resumption of the corrective bull cycle that started Jan 14. A continuation higher would open 133.73, 50.0% of the Dec 2 - Jan 14 bear leg and the next important resistance. Firm short-term support to watch has been defined at 131.00, the Jan 16 / 24 low. First support is at 131.85, a trendine drawn from the Jan 15 low.
• A bull cycle in Gilt futures remains in play for now, and the latest pullback is considered corrective. Last week’s extension has reinforced current conditions. The contract has traded through 93.09, the Dec 20 high, and breached 93.64, the 61.8% retracement of the Dec 3 - Jan 13 bear leg. Sights are on the 94.75, the 76.4% retracement. Initial firm support lies at 92.63, the 20-day EMA.