June 21. Another 100 bps higher by next summer solstice?
–Yields rose yesterday and the curve had a slight steepening bias; 2y note +1.3 bps and 10s +3.3 for a close in 2/10 of 36.8. Red/gold pack spread was also +2 on the day, bouncing from Tuesday’s cycle low of just 2.875 bps. Notable weakness in FF contracts as Fed Effective printed 1.91 for Tuesday (as opposed to 1.90). July FF were offered late at 9807.5 or 1.925. There are two month-end days in the contract as July 1 is Sunday and July 31 is a Tuesday. There are technical concerns that Fed Eff could again drift toward the upper band. EDZ8/FFF9 spread closed 39.0.
–There were some large option trades yesterday, kicking off with a sale of approx 100k EDU8 9762c (ref EDU8 9753) at 2.50 to 2.25, but others came in to scoop same calls up, so the net effect on open interest was -12k. The large change was in 9775c as the 9762/9775cs was bought for 1.5, along with the 9762/9775c 1×2. 9762c settled 2.0 and 9775c at 0.5 ref 9752.5. Open interest in 9775c was +78k. Of more interest is continuous buying of 12.5 wide deferred put butterflies. Yesterday it was EDM9 9687/9675/9662 p fly for 1.7 in 50k. With EDM18 having just expired around 9767, quarterly hike targets are again in play. Previously there had been a large buyer of EDH9 9712/9700/9687p fly. However, at face value, if there’s a hike every quarter then EDM9 would target 100 bps below EDM8, closer to the lower strike of the fly. On another note, there’s consistent buying of 2EU 9687p, which settled 9 vs 9696.5. Another 25k (new) yesterday. OI up to 179k. 2EU 9700^ settled 27.0.
–This morning SHCOMP at new low as is EUR. Treasuries modestly bid going into July option expiry tomorrow. Looking for a close above the 120 strike.
–Job claims expected 220k, and Philly Fed expected 29 from 34.4. LEI +0.4.
