EUR Vol: Lower as delivered drops

Grid surface volatility 30 Jan 2023
Euro implieds moved lower as delivered dropped.

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  • Lower as delivered drops
  • CMS 10s/30s calendar spread - SocGen
  • New structured issues

    Lower as delivered drops
    Euro implieds declined across both the top left and right-hand sides of the grid today amid the US Presidents Day holiday and low delivered vol. The 10y Bund future traded a 47 tick range around the previous close while the 10y yield was marked at 2.46% (+2bps).

    In gamma, 3m10y slipped by 1 normal and was last marked at 104.1, taking back most of Friday’s gain. “But these are pretty micro moves,” pointed out one trader, who reported light interest from his vantage point.

    Among the recent themes, one trader noted that vega stayed relatively well supported. “Slightly longer pieces like 1y10y and 1y30y are seeing buying interest compared to shorter pieces,” he said. At the same time, he suggested “seasonal supply” of callables could slow down in the run-up to Easter. In the market, 1y10y is marked up by 0.5 at 99.3 and to highest levels since late January. 

    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.


    CMS 10s/30s calendar spread - SocGen
    In its weekly rates research Societe Generale recommends buying EUR CMS 10s/30s SL cap calendar spread 6m1y. It writes:

    • “Once the central bank has finished hiking, the extent of yield curve steepening will depend on the timing and intensity of expectations for upcoming rate cuts. So, this time, curve re-steepening may be slow if the ECB continues pushing back on the market pricing of rate cuts in 2024.

    • “A lot will ultimately depend on the inflation picture – and how fast euro area core inflation is expected to normalise towards the ECB’s 2% target. Given related uncertainties, and the risk of sticky inflation declining only slowly, we do not recommend outright EUR steepeners yet.

    • “But we see value in curve options strategies, like single look cap calendar spreads on the EUR long-end slope.”


    New structured issues

  • Goldman Sachs issued €30m 8y NC1 callable due Apr 2031. Coupon pays 4% with annual calls from Apr 2024. Self-led.

  • Citigroup issued €56.9m stepped callable due Feb 2028. Coupon pays 2.55% until Aug 2023 and then steps up every 6m to reach 3.45% in Feb 2028. Callable every 6m from Aug 2026. Self-led.

    For a summary of recent EUR structured issuance please see EUR MTNs