1y tails active; Vega stalls
Euro implieds are finishing the session mostly higher across the grid as yields rose during the afternoon session. “Things were looking slightly more stable to begin with but then everything turned slightly better bid as rates started selling off again,” said one trader.
In the underlying, the front-end was under pressure from the open after the overnight FOMC while the Bund began selling off later in the day following a hawkish BOE meeting. Red Euribors are finishing around 11bps lower while the Bund future has sold off by a point compared to a drop of 160 ticks in the gilt. BTPs outperformed despite the approaching election.
In the market, there was plenty of action in 1y tails with prints going through including 3y1y at 186.5bps, 4y1y at 205bps and 5y1y at 216bps. Note that vega prints with shorter tails are sometimes associated with hedging of callable structures although sources were unable to confirm specific flows.
A few longer-dated vega pieces traded including 4y20y at 2580bps, 5y20y at 2701bps and 6y20y at 2809bps. “It’s true that area had been holding up well in recent sessions, but it seems to have stalled as the forwards aren’t moving so much,” a dealer said. "Also, dollar vols came off sharply after the Fed and that fed through (to the euro vol market) as well," he felt, see USD Vol: Vols plummet further post-FOMC.
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