USD Vol: Vols swoon back in lower; 10y tail short dated skew negative

Vols swoon back in lower; 10y tail short dated skew negative

Treasuries have sunk back lower after news that consortium of banks will deposit $30bn to help short up First Republic. Yields are last around 6 to 25bps higher on the day, led by the 2y note yield. The continued fallout of the vicious volatility has seen further casualties on news of grounding of traders at Brevan Howard.

The vol surface is lower, and indeed the move began in earnest yesterday afternoon, with much of the surface - with exception of the very upper left - closing out the session yesterday over half lower from the intraday high marks (but still higher on the day by around ~7 to 25 normals - outside the very ULC which ended around ~13-65 normals firmer ).

Today has seen a continuation of the selling with, for example, 3m expiries around 15 to 23 normals lower. Liquidity remains challenging and markets wide, sources say.

In interbank activity, 1y1y traded at 140bps today - after dealing as high as 170bps yesterday before trading down to 154bps at the end of yesterday. In longer expiries, this afternoon 10y10y traded at 1640bps, after trading at 1700bps and 1690bps earlier today - and as high as 1770bps yesterday (versus a switch of 3y10y at 1300bps), according to the SDR. 

Elsewhere today, 6m1y traded at 120bps, 3m2y traded at 166bps, 1m1y dealt at 60bps, 2y1y traded at 168bps and 1y5y traded at 508bps. In the lower left, 10y2y traded at 414bps and 5y2y traded at 398bps, according to the SDR. Earlier today, 1y10y traded at 850bps, then at 783bps and last traded at 777bps (~12 normals lower on the day) while 6m10y traded at 650bps but is last around 590bps (or ~15.8 normals lower). 3m10y last dealt at 455bps (~21 normals lower).

In skew, short dated 10y tail risk reversals traded more negative this morning, meaning that receivers are trading at a premium to payers, despite rates being on the lower end of the range and points to demand for protection against even lower rates.

For example, 1m10y 30bps each way risk reversal dealt at -15bps today after trading yesterday at -11bps and -7bps on Tuesday, according to the SDR and sources. However, since the selloff, the market has gone less negative with the market last -5bps/flat, sources say.

Also, 3m10y 50bp each way traded at -3bps early on today, after trading at +2bps (payers over Tuesday).

For USD option trades on the SDR see here and for volumes please see here.  

New structured notes

For a complete review of USD MTN activity over the past week, please see USD MTNs.  

• Royal Bank of Canada sold a $10m 10y NC6 zero coupon callable (non-Formosa). The EMTN matures Mar 2033 and is callable annually starting Mar 2029. Self-led. Estimated IRR 5.41%. Announced Mar 15.

   

• UBS is working on a self-led step-up callable maturing Mar 2024 NC6m that pays 4.25% to Sep 2023 and 4.35% thereafter. EMTN.