Implieds retreat, reversing recent gains
A calmer session in the underlying saw the Bund steady and rally around 20 ticks with the 10y yield last marked at 2.65% (-2.5bps), marking a stark contrast to yesterday’s aggressive sell-off when the 10y Bund yield hit a recent high around 2.73%.
As a result, euro implieds have softened amid today’s more restrained price action, taking back some of the yesterday’s sharp gains.
Most notably, the 1m expiries have seen a sharp reversal with 1m10y down by 4.5 normals at 101.7nvol, almost wiping out yesterday’s jump higher. Other 1m expiries saw a similar climbdown with 1m2y last -2.5 at 93.8nvol, 1m5y -3.4 at 108.5nvol and 1m30y -4.1 at 92.5nvol.
Other gamma pieces saw a similar retreat with 3m expiries marked anywhere from 1.5 to 3 normals lower.
Still, one euro vol trader described today’s rate rally as “not that convincing” and reckoned there was still scope for “more delivered through summer” given thinner markets and liquidity. Moreover, he “doubted” there was much interest to be sell gamma after yesterday’s pop higher, “Most clients are covered at the moment,” he reckoned.
Elsewhere, vega staged a similar reversal to gamma and edged 0.2 to 0.4 normals lower although flows were described as “pretty tame”, according to one vol trader speaking earlier in the session.
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