EUR Vol: Support lingers; Vega underperforms

Computer lines code 30 Jan 2023
The top left and euro gamma stayed supported after the market got a reminder that outsized moves still occur. Vega underperformed.

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  • Support lingers; Vega underperforms  
  • Sell EUR 1y1y - JP Morgan
  • New structured issues


    Support lingers; Vega underperforms
    The top left of the euro vol grid alongside gamma out to 1y expiries stayed bid today as the bond market entered its fourth consecutive day of sell-off. In Bunds, the 10y yield finished 2bps higher at 2.37% and over 30bps higher since last Thursday’s close.


    "The market reminded us yesterday that we can still get outsized moves," said one trader, referring to the surprise ECB announcement shortly after Tuesday's close that government deposits will be remunerated at €STR-20bps instead of 0% from May. The move hit the Schatz and sent short-dated swap spreads sharply tighter, see EUR Swaps


    Elsewhere, vega underperformed as a few more callables hit the screens, the latest a €50m KfW 5y NC1 via DZ Bank. The mid-left of the grid is up to 0.5nvol lower while the bottom right has declined up to 0.3nvol.  


    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.


    Sell EUR 1y1y - JP Morgan
    In research published the end of last week JP Morgan recommends selling EUR 1y1y straddles unhedged. The bank writes:

      “We prefer selling volatility via unhedged straddles to benefit from an expected decline in implieds over the medium term and yields to remain in a range over the near term. We are wary of outright short gamma positions given elevated jump risk. Indeed, the dynamics post ECB correlates this view where the jump in yields was sufficient to erode several days worth of carry accumulation from being short gamma… Even though we expect yields to remain in a range we remain wary about large jumps within the range. Thus, we prefer setting short volatility structures via unhedged straddles as opposed to delta-hedged straddles.”


    New structured issues

  • KfW issued €50m 5y NC1 callable due Feb 2028. Coupon pays 3.35% with single call in Feb 2024. Led by DZ Bank.

  • Bank of Nova Scotia issued €10m 15y NC7 callable due Feb 2038. Coupon pays 4% with single call in Feb 2030. Puttable in Aug 2023. Self-led.

  • Aareal Bank issued €5.1m 20y NC10 callable due Feb 2043. Coupon pays 4.603% with single call in Feb 2033. Self-led.


  • Credit Agricole issued €30m CMS-linked callable due Feb 2033. Coupon pays Multiplier * EUR 5s/30s +spread, capped at 5.5% and floored at 0% until Feb 2025. It then pays 7.6% until maturity. Annual calls from Feb 2026. Self-led.