EUR Vol: Pace of decline slows after recent tumble

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The pace of decline in euro vol slowed today as the top left and gamma lost just a couple of normals.

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  • Pace of decline slows after recent tumble
  • Caution on short gamma - JP Morgan
  • New structured issues


    Pace of decline slows after recent tumble
    The pace of decline in euro vol slowed today as the upper left closed around 1-2 normals lower while right-hand side gamma finished down by just 0.5 to 0.75 normals.

    Today’s smaller decline marked a contrast to recent sessions where the top left had been posting double-digit losses. For instance, 3m2y finished the day just 1nvol lower at 135.2 having tumbled 40 normals over the past week or so.

    The possible bottoming out in euro vol comes after some traders suggested the sell-off may have run its course and as some look for protection over the long weekend. Likewise, there have been similar signs of dollar vol finding support, see here.

    Elsewhere, in its latest rates weekly JP Morgan is bearish on gamma but cautious about holding outright short gamma positions given poor liquidity and jump risk. The bank explains:

    • "We expect implieds to decline from current elevated levels primarily on the expectation that the banking crisis concerns are behind us and macro out-turns will start to dominate risk sentiment once again. Given that most central banks are close to the end of their hiking regime and are signaling high probability of keeping the restrictive stance for some time, this calls for a decline in implieds.

    • “We acknowledge that implieds are still likely to stay at overall elevated levels compared to historical averages but decline from current levels. For instance, we believe that 3m2y implied could decline to around 6-7bp/day over the near term(versus current level of around 9.1bp/day) and then gradually to around 5bp/day but will struggle to go significantly below this.

    • “Despite out high-conviction medium term view, we are wary of poor liquidity which is likely to keep jump risk and consequently delivered volatility high. Therefore, we avoid outright short gamma exposures and prefer to sell volatility only selectively.”


    New structured issues

  • Credit Agricole issued $5m quanto MTN due Apr 2038. Coupon pays 8.52% fixed until Apr 2025. It then pays 7 * EUR 2s/30s. Further details unavailable. Self-led.