EUR Vol: Bouncing off lows; Quiet summer?

Chart green up line 15 Jun 2022
Euro implieds bounced off recent lows. Ahead, sources discuss whether there will be a quiet summer.

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  • Bouncing off the 2023 lows
  • Carry trade via CMS - BNPP
  • New structured issues

    Bouncing off the 2023 lows
    Euro implieds edged higher today with gamma closing up by 1 to 3 normals and several pieces bouncing off the 2023 lows. In the underlying, the US was closed while EGBs and gilts headed lower with the 10y Bund future last down by 65 ticks and the 10y Bund yield up by 4.5bps to 2.52% last.

    In euro vol, 1m expiries led today’s gains as 1m10y finished up by 3.2 at 81.7 normals having dipped as low as 76.9 during Friday’s session, the lowest since March 2022.

    Ahead, one trader reckoned euro implieds could face further selling pressure despite having already dropped significantly over the past few months. "We are not expecting a volatile summer... The next month in particular should see vols moving lower as July is a bit of a done deal," he reckoned. 

    As for vega, he reckoned "Vega could also grind lower, but more from the lack of delivered as callable flow typically quietens down during the summer period," he noted. 

    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.


    Carry trade via CMS - BNPP
    Strategists at BNP Paribas recommend selling 1y expiry 2s/10s ATM CMS straddle at 51 cents, targeting 36 cents with a stop at 61 cents. The positive carry is 2.2 cents over 1 month. The bank writes:

    • “We initiate a trade idea that aims to pick up some positive carry before the next major macro theme becomes apparent. Implied vol has declined heavily over the past three months, with vol premia getting squeezed lower.

    • ”We feel the 2s/10s CMS spray vol offers one of the few remaining attractive vol premia. Unless realised vol on the curve picks up significantly, implied vol on 2s/10s has room to converge lower. 2s/10s steepening related to the end of the hiking cycle is already priced into the foreward cycle and may be difficult to meaningfully overshoot.”


    New structured issues

  • NordLB issued €20m 15y NC5 callable due Jul 2038. Coupon pays 4.75% with single call in Jul 2028. Self-led.

  • DZ Bank issued EUR 3y NC1 callable due Jun 2026. Coupon pays 4.37% with single call in Jun 2024. Self-led.


  • Barclays issued €50m inflation-linked note 1.64% due 3 Jul 2028. Coupon and redemption linked to euro HICPx. Self-led


  • SPIRE issued €20m inflation-linked repack due 12 Jun 2030. Coupon and redemption linked to euro HICPx. Further details unavailable. Led by JP Morgan. 


  • SPIRE issued €40.5m inflation-linked note due Jun 2030. Coupon and redemption linked to euro HICPx. Led by JP Morgan.


  • SPIRE issued €33m inflation-linked repack due 14 Jun 2030. Coupon and redemption linked to euro HICPx. Further details unavailable. Led by JP Morgan.