EUR Vol: Retreat continues led by short expiries

Retreat continues led by short expiries
The euro vol surface continued to retreat lower as risk sentiment improved amid tighter credit spreads and higher banking stocks. Also in the mix, UK inflation printed higher-than-consensus at 10.4%yoy, fuelling the sell-off in European rates.

Short-dated expiries led today’s decline in euro vol. For instance, 1m10y was last down by 9.4 at 130.9nvol while 3m10y declined by 3.4 at 125.6nvol.

Meanwhile, one London-based trader highlighted today’s above-consensus UK inflation print, “It shows there are still inflation risks out there and the possibility of a repricing higher of ECB terminal rate expectations,” he said.

Still, the top left of the grid still managed to retreat today with 1m2y down 6.3 at 190.6nvol while 1y1y was last down 1.3 at 133.6nvol. In the underlying, Euribors sold off up to 20bps while SONIA futures lost as much as 40bps earlier.

In terms of rate direction, one trader reported interest in payers, “Skew is looking quite cheap in euros, possibly we will see more interest in payers,” he suggested, highlighting interest in the top left of the grid.

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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