US TSYS: Tariffs, Never Too Late To Negotiate

Treasury's financing requirement estimates for the first half of calendar 2025 were a little on the low side of expectations, though not dramatically so.

• Versus November's estimate, Q1 2025's (Jan-Mar) marketable borrowing requirement was barely changed, at $815B vs $823B prior. Importantly, Treasury didn't adjust its end-of-quarter TGA cash balance target of $850B (which represents a $128B increase from the level at end-2024).
• In the newly-issued Q2 2025 estimates, borrrowing is seen dropping off considerably, to $123B (consensus had been between $100-500B), with a net negative financing need, with no change in the end-quarter cash level from the preceding quarter ($850B).
• All of these estimates assume that Fed QT will continue at its current pace through the middle of 2025.
• See table below:

Option desks reported decent SOFR & Treasury upside call flow on decent volumes Monday. Underlying futures stronger, off midmorning highs after Pres Trump agreed to delay 25% tariff on Mexico, negotiations on Canada & China ongoing but expected to begin tomorrow. Heavy volumes (TYH5 near 2.5M at the moment), curves twist flatter as short end lags Bonds (2s10s -6.008 at 27.741). Projected rate cuts through mid-2025 have cooled slightly vs this morning's levels (*) as follows: Mar'25 at -3.5bp (-3.7bp), May'25 at -9.8bp (-10.3bp), Jun'25 at -19.2bp (-19.7), Jul'25 at -24.4bp (-24.9bp).

• SOFR Options
  • +20,000 SFRJ5 96.12/96.37 call spds, 1.75 ref 95.87
  • -6,000 SFRU5 95.43 puts, 3.0 vs 96.02/0.10%
  • +10,000 SFRJ5 96.12/96.37 call spds, 1.75 ref 95.87
  • +10,000 SFRJ5 95.62/95.68/95.75 put flys 1.0 ref 95.885
  • +9,000 SFRZ5 95.50/95.62/95.87 2x3x1 put flys, 5.5 ref 96.07
  • Block, 5,000 SFRM5 95.56/95.68/95.81 put flys, 4.75 ref 95.89
  • +30,000 SFRJ5 96.12/96.37/96.50/96.75 call condors, 1.25
  • +3,000 2QU5 96.62/97.00 call spds +6.75/3K (9607
  • +5,000 0QZ5 96.25/96.75/97.25/97.75 call condors, 11.5 ref 96.08
  • +5,000 SFRM5 95.62 puts, 1.25 vs. 95.885 to -.89/0.10%
  • 1,300 SFRH5 95.81/85.93 call spds vs. SFRH5 95.68 puts
  • 11,000 0QK5 97.00 calls ref 96.09
  • Block, 1,500 SFRU5 96.62/97.12 2x3 call spds, 2.5 ref 95.975
  • 3,500 SFRH5 95.68/95.75/95.81 call flys ref 95.74
  • +6,000 SFRJ5 95.68/95.75/95.81/95.87 put condors, 2.75 ref 95.85
  • 1,500 0QH5 96.25/96.50/96.75 call flys
  • -19,850 SFRH5 95.00/95.62/96.00 broken call flys, 51.5 ref 95.735/0.85%
  • 4,000 SFRZ5 96.00/96.37/96.75 call flys, 5 ref 96.01
  • 2,000 SFRM5 95.75/96.00/96.12 broken call flys ref 95.85
  • 2,250 0QJ5 95.81/95.93 put spds vs. SFRJ5 95.68 puts
  • Block, 2,500 SFRU5 95.87/96.00 put spds, 7.0 ref 95.96
  • 5,000 SFRZ5 96.50/97.00/97.50 call spds ref 96.04
  • Blocks, +9,000 0QG5 96.31 calls, 2.0 to 2.5 ref 96.04 to -.075
  • 2,000 SFRM5 96.00/96.25/96.37/96.62 call flys ref 95.875
• Treasury Options:
  • +45,600 wk2 TY 112.75 calls, 1 ref 109-01 (expire Friday)
  • 3,000 TYH5 111.5/112.5 1x3 call spds, 2 net, 3 legs over
  • 5,000 TYH5 109.75/110.5/111 broken call trees, 1 net
  • -15,000 USH5/USJ5 108 puts, 14
  • -3,000 TYH5 109.25 straddles, 121
  • +5,000 TYH5 110/111 call spds, 10-11
  • 5,000 TYH5 107 puts, 7 ref 109-02.5
  • -7,000 TYH5 108.5/109.75 call spds, 35 ref 108-30 to -30.5
  • 4,000 FVH5 108/108.5 call spds ref 106-08.75 to -09
  • +20,000 Monday weekly FV 106 puts, 0.5-1.5

• RES 4: 164.90 High Dec 30 and a key short-term resistance
• RES 3: 164.08 High Jan 24   
• RES 2: 162.05 50-day EMA
• RES 1: 159.98 Intraday high 
• PRICE: 159.30 @ 16:48 GMT Feb 3  
• SUP 1: 157.97 Low Feb 3
• SUP 2: 156.99 Low Dec 4     
• SUP 3: 156.18 Low Dec 3 and a key support  
• SUP 4: 1155.15 Low Sep 16 ‘24   

EURJPY has traded to a fresh short-term cycle low Monday, confirming a resumption of the bear leg that started Dec 30 last year. An important retracement point at 158.24, 76.4% of the Dec 3 - 30 bull cycle, has been pierced. A clear break of this level would signal scope for an extension towards 156.18, the Dec 3 low. On the upside, initial firm resistance to watch, and a pivot level, is 162.05, the 50-day EMA.