USD Vol: Vols soften despite higher rates
Vols soften despite higher rates
St. Louis Fed President Bullard gave doves something to hitch their bandwagons onto today, saying in a presentation that while the policy rate “is not yet in a zone that may be considered sufficiently restrictive,” it is “getting closer.”
Treasury yields are anywhere from 1.5bps lower (30y) to 10bps higher on the day (2y). Despite the overall bear flattening move, vols buckled in lower. “For the first two days of the year it seemed like vols were coming in cause rates were lower as vols could be called directional, but then today, rates were higher and vols are still down,” pointed out one trader.
Indeed, at the height of the selloff this morning, 1y1y was 106/107bps and then saw 105.5bps hit, sources note. The right side also saw a fair amount of selling today, with, for example, 1y10y trading this morning at 809bps, then 808bps and then 807bps and then down at 804bps and is last around 801bps, sources say.
Overall, 3m to 1y expiries are down around 0.5 to 2 normal while longer expiries are lower by around 0.5 to 2 normals, with the intermediate and bottom left leading the softening, sources say. As for tomorrow’s realized volatility projection, 1day10y was last 65/80bps or roughly equating to 7.5 to 9.5bps breakeven on the day, a source noted.
In other interbank activity, 1y10y also traded in good size versus 3y10y as a switch at a spread of 450bps. In other switches. 2y5y versus 5y5y traded at 650bps and 867bps, respectively, and 5y5y versus 5y30y traded at 865bps and 2775bps, respectively. 2y10y traded at 1077bps and then up at 1080bps last, sources note. In gamma, 2m10y traded at 335bps, and 3m10y traded at 411bps, according to sources and the SDR..
On the left side, 1y2y traded at 211.5bps, 4y1y traded at 199bps and then down at 197.5bps, 7y1y traded at 219.5bps, 3y1y traded at 178bps and 2y1y dealt at 149bps, according to the SDR and sources.
2x4 0% floors trade up; 2x4 flooridor; long dated 10y30y riskies
In skew trading, 2x4 0% floors traded at 24.25bps this morning and then traded down at 23.5bps, with the offer lifted at the time, according to sources. One trader judged that both levels looked rich, and on the follow, the 0% floor saw a market of 20/24bps last. Meanwhile the 2x4 75bps versus 125bps flooridor traded at a spread of 17bps, sources say.
In long dated risk reversals, a 10y30y 100bp each way risk reversal traded at +98bps, and was bid on the follow, sources say. To one trader, the level looked to be somewhat high. Elsewhere, in a caplet trade a 6mx9m cap 5% strike traded at 15bps, sources say.
New structured notes
For a complete review of USD MTN activity over the past two weeks, please see USD MTNs.
- Citigroup is working on a self-led fixed callable maturing Jan 2033 NC2 that pays 5.8%. Domestic MTN.
- Standard Chartered sold a $45m 10y NC2 fixed callable Formosa. The EMTN matures Jan 2033 and is callable annually starting Jan 2025 and pays 6%. Leads Shanghai Commercial, Standard Chartered Taiwan and Taipei Fubon. Announced Jan 5th.
- Citigroup is working on a self-led fixed callable maturing Jan 2028 NC1 that pays a 5.45%. Domestic MTN.
- Citigroup is working on a self-led step-up callable maturing Jan 2030 NC2 that pays 5.5% to Jan 2026, 6% to Jan 2028 and 6.5% thereafter. Domestic MTN.
- HSBC sold a $50m 10y NC4 zero coupon callable (non-Formosa). The EMTN matures Jan 2033 and is callable annually starting Jan 2027. Self-led. Estimated IRR 5.02%. Announced Jan 4.
- Barclays is working on a self-led fixed callable maturing Feb 2024 NC6m that pays 5.35%. GMTN.
- CIBC is working on a fixed callable via MS maturing Jan 2025 NC1 that pays 5%. GMTN.
- CIBC is working on a fixed callable via MS maturing Jan 2029 NC1 that pays 5.55%. GMTN.
- Toronto Dominion is working on a self-led fixed callable maturing Jan 2025 NC3m that pays 5.3%. GMTN.
- Toronto Dominion is working on a self-led fixed callable maturing Apr 2024 NC3m that pays 5.35%. GMTN.
- Royal Bank of Canada is working on a self-led $30m floating callable maturing Jan 2033 NC4 that pays 2y ICE SOFR +160bps. EMTN.
- Royal Bank of Canada is working on a self-led fixed callable maturing Jan 2031 NC2 that pays 5.5%. GMTN.
- Royal Bank of Canada is working on a self-led fixed callable maturing Jan 2028 NC2 that pays 5.45%. GMTN.
- Ally Financial is working on a fixed callable via Insperx maturing Jan 2026 NC6m that pays 6.1%. Domestic MTN.
- Ally Financial is working on a fixed callable via Insperx maturing Jan 2033 NC6m that pays 6.7%. Domestic MTN.