EUR Vol: Short-dated gamma expiries slammed amid ECB moves

Short-dated gamma slammed
Short-dated gamma expiries entered free fall today with some pieces dropping up to 10 normals intra-day after the FOMC, BOE and ECB meetings triggered a global rate rally. In euros, the 10y Bund future was already up a point before the ECB meeting and then rallied afterwards to finish the session almost three points higher. The BTP gained over four points.

The sharp post-ECB gains in the Bund took some traders aback, “It is surprising. But there was room to catch up with the UST rally I suppose,” said one earlier. Others blamed positioning and a short-covering squeeze.

But there was also pushback against the short squeeze view. Some suggest there has been a shift in ECB rate expectations along with more confidence about where the peak in rates could be. For instance, the Governing Council said the risks to inflation were “more balanced” whereas the previous statement described inflationary risks as “primarily on the upside”.

Back in euro vol, the rate/vol correlation meant the fixed income rally hit gamma hard. The 3m10y slumped down to 96.1 (-8.8) intraday before bouncing alongside other gamma pieces into the close and finishing at 99.9 (-5.0).

The drop in slightly longer gamma expires was less dramatic. For example, across 1y expires the closing levels were in the region of 1.7 normals lower, such as 1y1y at 85.2 (-1.8), 1y5y at 95.2 (-1.7) and 1y10y at 95.8 (-1.7).

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.

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