EUR Vol: Higher but lagging USD; Callables print

Up chart 25 Mar 2021
Euro implieds continue to edge higher but have lagged dollars. Callables print.

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  • Implieds up on selloff and realized
  • Value in EUR vs USD swaptions - SG
  • New structured issues: Callables

    Implieds up amid selloff and realized
    Euro implieds moved mostly higher today as the selloff in EGBs continued. The Bund future lost another 80-odd ticks while the 10y yield climbed 5bps to 2.35%, nearly 30bps higher since the ECB meeting.

    Gains across the left and right-hand sides of gamma have been 0.5 to 1 normal. “It’s still going up, but there isn’t a great deal of momentum behind it at the moment,” felt one trader. “When you compare it to the rebound in dollar vol then its actually been quite modest,” he added.


    One trader argued it made sense that euro vols have failed to see a meaningful rebound, "There is uncertainty about the terminal rate, but the bigger picture is that we are heading towards the end of the rate hiking cycle."


    Elsewhere, vega posted gains around 0.1 to 0.3nvol. In structured issuance a few more callables have hit the screens (see below). 


    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.


    Value in EUR vs USD swaptions - SG
    In weekly rates research published the end of last week, strategists at Societe Generale see value in EUR vs USD swaptions. The bank writes:

    • "Swaption vols have extended their fall following the Fed and ECB meetings. Since October, short rates vol has declined more rapidly in EUR than USD. USD short rates vol remains higher than the EUR equivalent, likely because the market is now more convinced of eventual Fed rate cuts. Indeed, the short rate smile is symmetrical in USD while it is upward sloping in EUR.

    • “So, the market sees the tail risk of a dovish Fed as roughly equivalent to the tail risk of a hawkish Fed, while the balance of risks regarding the ECB remains on the hawkish side. This relative pricing of EUR and USD short tail swaptions allows for a fade in ECB rate cut expectations by buying EUR short rate payer spreads financed by selling USD OTM payers.

    • “We see value in two expressions: 1) Buy EUR 6m2y ATMF/+25bp payer spread, sell USD SOFR 6m2y ATMF+58bp payer, zero-cost (indicative); 2) Buy EUR 3m2y ATMF/+20bp payer spread, sell USD SOFR ATMF+35bp payers, zero-cost (indicative).”


    New structured issues

  • UniCredit issued €57m 16y NC7 callable due Feb 2039. Coupon pays 4.705% with single call in Feb 2030. Led by UniCredit.

  • UBS issued €90m 15y NC10 callable due Feb 2038. Coupon pays 4.5% with single call in Feb 2038. Led by UBS.

  • Barclays issued €20m 15y NC5 callable due Feb 2038. Coupon pays 4.37% with single call in Feb 2028. Led by Barclays.

  • CDC issued €13m 12y NC3 callable due Feb 2035. Coupon pays 3.53% with single call in Feb 2026. Led by Credit Agricole.