Left side underperforming
The left-hand side of the grid underperformed today as sources say the right-hand side found support as yields edged higher. In the underlying, the Bund future closed around 60 ticks lower while the EUR 10y swap gained +5.5bps to 2.94%.
“Clients have been coming back from their holidays and looking for a bit of protection and buying gamma,” reported one trader, referring to interest across the right side of the grid.
By contrast, the top left moved lower with 1y1y down 1 normal at 111.3 and around 8 normals lower than the end of last year. It follows a similar pattern to USD vol markets where the top left has underperformed recently. “Things tend to be pretty correlated with the outright and the US,” one trader observed.
As for selling interest across the top left of the euro grid, “These sort of carry and relative value trades in the top left have been trending a bit recently,” a trader felt. Ahead, he was unsure where the floor for pieces such as 1y1y might be in euros, “We could easily get back to the 100 norm level,” he reckoned.
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