Implieds continue to drift lower
Implieds are lower across the board as the euro vol market shrugs off the impact of Canadian and Aussie rate hikes this week.
The 1m expiries have seen the biggest decline with a drop of around 2 normals. Further out, 3m expiries have lost around 0.5 to 0.8 normals with 3m10y last down by -0.6 at 93.5novl and nearing the previous 2023 lows from mid-May.
Vega was unchanged or slightly higher after some pieces faced selling pressure earlier in the week. For instance, 10y10y was last marked +0.2 at 75nvol.
In the background, issuance was subdued amid regional holidays across Germany and the Bund was last up 25 ticks.
Stay short 2y10y via payers - JP Morgan
Strategists at JP Morgan hold a short 2y10y position via OTM payers. The bank explains:
- “At the long-end of the curve, we keep our shorts in 2y10y via OTM payers. Implieds volatilities for fixed strike/fixed date has increased by around 0.1bp/day but we see room for a decline in implieds over the coming days. The trade is marginally under on a small increase in implieds and delivered volatility being at par with ex-ante implied volatility.”
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