EUR Vol: Left side retreats but wariness persists

Chart line 30 Jan 2023
The left-hand side retreated but wariness about US banks persists.

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  • Left side retreats but wariness persists 
  • RV and recent flows - BNPP
  • New structured issues

    Left side retreats but wariness persists
    Bunds have pared earlier gains with the 10y yield last marked near unchanged around 2.245% (-1bp) while the Euro Stoxx finished the session +0.4%. Sources say the market has been in limbo as it preps itself for the Fed rate decision with the consensus looking for a 25bps rate hike from the FOMC later today.

    In euro vol, implieds are mostly lower across the board, led by the upper left corner with 1m2y down by -6.9 at 124.4nvol.  “The low realised is having a bit of a hit on the market,” observed one trader. "But we're not seeing clients coming in and selling, there's still wariness about US banks. Plus, people want to get the Fed and ECB (decisions) out of the way before the next move," he reckoned. 

    Elsewhere, some longer-dated gamma expiries held up better with 3m10y +0.7 at 104.9nvol while 3m30y was +0.7 at 87.2nvol. Looking ahead to tomorrow’s ECB meeting, one trader suggested that longer-dated tails could see some demand should the ECB hike by 25bp as expected, “They have underperformed for a while... We could possibly see a duration rally and flattening across the curve,” he said.

    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.


    RV and recent flows - BNPP
    In its weekly euro rates weekly BNP Paribas makes the latest observations about the euro vol market:

    • “Bund ATM vol offers good value versus swaptions, we find.

    • “In swaptions 30y tail vol looks cheap on the grid on a relative value basis.

    • “Realised vol downturn has been a dragging force on implieds.

    • “Negative rates versus vol correlation persists, keeping pressure on the collars and demonstrating that the focus remains on the left tail of the distribution.

    • “Increased realised correlation across the yield curve leaves constant maturity swap spread vols looking generally rich, but 5s/10s appears to offer the best value compared to realised vol. 

    • “Swap repository data show that demand for downside protection has picked up in the very top left (out to 1y1y driving the payer/receiver ratio to 0.66.

    • ”There also appears to have been net buying flow down the 1y tails versus slight net selling on 2y-5y tails; this makes some intuitive sense as the 1y tails look optically cheap compared to 2y-5y.”


    New structured issues

  • KfW issued €25m 5y NC2 callable due May 2028. Coupon pays 3.27% with annual calls from May 2025. Led by DZ.

  • CIC issued €10m 15y NC5 callable due May 2038. Coupon pays 4.55% with calls in May 2028 and May 2033. Led by Jefferies.


  • SPIRE last month sold a €100m zero coupon repack due 25 Jun 2039 callable once in June 2024. Repack of the Green OAT 1.75% 25 Jun 2039. Lead is MS. 

    For a summary of recent euro HICPx structured MTN issuance, see here