EUR Vol: Top left testing lows again; Vega down

Down chart candlestick 11 Jun 2020
Euro implieds moved lower across the vol grid today.

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  • Top left testing lows again; Vega down
  • Close out short 1y1y - JPM
  • New structured issues: KfW

    Top left testing lows again; Vega down
    Euro implieds are lower across the grid while in the underlying yields are also finishing the session lower. The 10y Bund future was last up around 50 ticks and 10y yield was marked at 2.15% (-5bps) as the market earlier took down large supply including a €5bn 30y EU tap.

    One trader highlighted price action in the top left as pieces such as 1y1y lost around 1.7 normals to 88.8 and neared recent lows. “It was starting to find support and it’s interesting that a few more offers have crept into the market. Going into the ECB we’d expect to see a bit more short-covering in these pieces,” he said.

    Elsewhere, gamma also slipped lower led by short-dated expiries, thus taking back yesterday’s gains. For instance, 1m10y is down by 3.9 normals at 114 while 1m30y is down by 4.2 normals at 107.9.

    Farther out, vega continues to face downward pressure with several pieces in the bottom right reaching fresh year-to-date lows. For instance, 5y10y is down 1.2 at 85.9 and 10y10y down 0.9 at 74.5.

    For euro option trades on the SDR see here and for volumes please see here. Note that the Total Derivatives SDR now shows broker/platform information for each trade, where available. 


    Close out short 1y1y - JPM
    In its weekly rates research JP Morgan takes profit on its short 1y1y position. The bank writes:

    • “Front-end impedes now appear broadly fair versus yield in a short-term model. We are now broadly neutral duration and therefore expect implieds to hover around current levels over the very short-term, especially going into the central bank meetings at the end of the month.

    • “With market liquidity still on the poor side, we cannot discount small tactical rebound in implieds over the coming few days and therefore turn neutral on implieds at the front-end of the curve. To this effect, we also take profit in our short 1y1y unhedged straddle that we had recommended two weeks ago. With near-term risks abound, we are wary of short-term risk of a snap back in implieds and therefore take profit.”


    New structured issues: KfW callable

  • KfW issued €45m 5y NC1 callable due Feb 2028. Coupon pays 3.26% with annual calls from Feb 2024. Led by BNP Paribas.

  • Bank of Montreal tapped €40m 19y NC12 callable 3.72% due Sep 2042. Calls in Sep 2030 and Sep 2038.  Puttable in Mar 2023. Pricing unconfirmed. Led by BMO.