EUR Rates Volatility Seen Retreating in Near Term, RBC Says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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UUID: 7947283
(Bloomberg) -- Implied and realized volatility in EUR rates markets may subside in the near term with little event risk on the cards until the Jackson Hole summit, giving the opportunity to sell short-dated bund options, strategists at RBC Capital Markets write in a note.
- September bund future expiry on Aug. 25 falls in the middle of the Jackson Hole symposium
- September bunds 164 ATM straddles can be sold for around 85 ticks, implying around 7bps in underlying 10y yields; implies range covered of approximately 35-50bps (spot 42bp), roughly matching range seen over the last 10 days
- Reasonable to expect volatility won’t be higher than that seen over the last 2 weeks at least until Jackson Hole, which starts Aug. 24, or most likely not even until the Sept. 7 ECB meeting
- If anything, yields are likely to “creep up somewhat,” and hence a small directional bias may be added to the trades; “if that risk is acceptable, we can see selling some OTM calls on the bund future as way of collecting some premium income”
- Over the medium term, see yields trending higher; expect U.S. yields to lead, with U.S.-bund and U.S.-gilt spreads to widen and EUR curve to steepen from current levels
- NOTE: Draghi Is Said to Not Plan Policy Message at Jackson Hole: Rtrs
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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To modify this alert, click here
UUID: 7947283