EUR Vol: Decline in gamma continues

Down chart candlestick 11 Jun 2020
The decline in euro gamma continued, cementing a two-week trend that has seen implieds fall sharply.

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  • Decline in gamma continues
  • Lower implied bias - JP Morgan
  • New structured issues

    Decline in gamma continues
    Euro implieds continued to head lower, cementing the trend of the past couple of weeks with the top left leading the decline. In the background, euro fixed income took its cue from US markets for most of the session with the 10y Bund yield last up 4bp at 2.35%.

    Across the top left, losses were led by 2m1y as it declined 5.1 to 82.2 and down almost 30 normals over the past two weeks. Further out, 1y1y is down by 1.6 at 112.7 and around 15 normals lower over the same period.

    Elsewhere, the top right also retreated although the gains were less impressive than the left-hand side. For instance, 3m10y finished the session down by 1.9 at 93.5 and has dropped around 10 normals over the past couple of weeks.

    To recap, sources speaking yesterday suggested there could have been programme sellers in the market putting pressure on gamma, despite lingering concerns about the US banking sector.

    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.


    Lower implieds bias - JP Morgan
    In its latest rates weekly JP Morgan expects implieds to decline further but is cautious about outright short positions. It writes:


    • “We are biased towards further decline in implied volatility but remain wary of outright short gamma positions given risks around US debt ceiling dynamic and the US regional banks. While the negative directionality of implieds to yields has weakened recently, this could re-accelerate if these risks materialize.

    • “Therefore, we stay short gamma selectively at the very front-end via shorts in unhedged straddles/strangles. We have been recommending shorts in Jun23 unhedged strangles over the past few weeks. The strangle has lost around 80% of the inception premium and therefore we shuffle our shorts from Jun23 strangles into Sep23 unhedged strangles. Specifically, we sell unhedged 96.125/96.375 strangles (Sep23 Euribor futures at 96.26) at around 30 cents…”


    New structured issues

  • SPIRE issued €30.518m CMS-linked repack EMTN due 27 May 2033. Coupon pays EUR 20y CMS +153bps, capped at 7% and floored at 2%. Backed by unspecified repack. Further details unavailable. Led by Goldman Sachs.


  • IBRD sold a €10m 10y NC1 3.6% due May 2033. Callable once in May 2024. Lead is ING.  

  • NordLB issued EUR collared FRN due Jun 2028. Coupon pays 3mE capped at 4.25% and floored at 2.75%. Self-led.