USD Vol: Implieds sink lower, led by gamma

Implieds sink lower, led by gamma  

Treasuries have flattened with the front end underperforming with an up to 4bps rise in yields while the back end is up to 2bps lower. The $38bn 10y auction came 0.1bps through the 1pm bid side, drawing a rate of 3.999% with higher indirects (72.2%) and the 3rd lowest primary dealer allocation of 9.5%. The vol surface is much lower across the board, adding onto modest losses yesterday.

3m expiries are anywhere from 3.5 to 6.5 normals lower, led by the left side, while 1y expiries are 1.3 to 2.5 normals, with the belly leading the move there. Longer expiries are also off by around 1-1.5 normals. Lightening up on long positions prior to the CPI event along with the drop in realizeds and the return into the range have been factors in today’s softening move. “Rates are a bit more in a range,” noted one source.

Last week (prior to NFP) saw a sustained bear steepening move that caused vols to pop higher, led by the right, and that had people “freaked out,” remarked one source. But since then the price action this week has been more choppy, with lower delivered volatility and rates sinking back in from the recent probe out of the range and thus vols have come down, a source explained. 

In interbank activity, in a switch 1m5y dealt at 136bps versus 1m10y at 220bps, 1m10y traded versus 1m30y as a switch at 218bps and 432bps, respectively, 6m5y traded at 328.5bps and 6m10y traded at 535bps, 1y1y dealt at 112bps while 3m1y traded at 38bps, 1y5y dealt at 458bps, 3m5y traded at 232bps and in a switch, 3m30y versus 1y30y traded at 734bps and 1402bps, respectively, according to the SDR.

In longer expiries, 5y10y dealt at 1395bps, 2y10y versus 20y10y traded as a switch at 1015bps and 1818bps, respectively, while 2y10y dealt outright at 1015bps and 3m10y versus 1y10y traded as a switch at 396bps and 760bps, respectively, and  3y30y versus 3m30y traded as a switch at 2246bps and 757bps, respectively.

As for skew, some long dated skew looks to have traded with, for example, 10y10y 100bp each way at +115bps, with the market +115/+120bps earlier, sources say. In addition, 5y10y 100bp each way risk reversal may have dealt at +86bps, while in the ULC, 1y2y 50bp each way risk reversal may have dealt at -7bps, according to the SDR.  

For USD 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.

New structured notes

For a complete review of USD MTN activity over the past week, please see USD MTNs.

• African Development Bank sold a $50m 20y NC6 zero coupon callable (non-Formosa). The EMTN matures Aug 2043, is callable once in Aug 2029 and has an estimated IRR of 5.315%. Lead is JPM and announced Aug 9.

   

• IBRD sold a $50m 20y NC5 fixed callable. The EMTN matures Aug 2043, is callable annually from Aug 2028 and pays a 5.08% coupon. Lead is BNPP and announced Aug 9.

   

• Citigroup is working on a self-led fixed callable maturing Aug 2029 NC5 that pays 5.35%. EMTN.

   

• UBS is working on a self-led step-up callable maturing Sep 2026 NC1 that pays 5% to Sep 2024, 5.25% to Sep 2025 and 5.5% thereafter. Eurodolllar.

   

• UBS is working on a self-led fixed callable maturing Aug 2025 NC1 that pays 5.42%. EMTN.

   

• Toronto Dominion is working on a self-led $200m fixed callable maturing Sep 2024 NC9m that pays 5.95%. CD format. Domestic.

   

• Standard Chartered is working on a self-led fixed callable maturing Aug 2024 NC1m that pays 7.52%. Credit linked. EMTN.

   

• Jefferies is working on a self-led fixed callable maturing Aug 2025 that pays 6.5%. Domestic MTN.