Halister News

(Bloomberg) -- Bund downside increases as risk sentiment improves; however, futures may consolidate in higher range in the very near term until a lasting de-escalation of geopolitical risk is achieved.

• See bund skew chart here highlighting downside edging higher vs fading of low-delta calls
• KOSPI2 3-month ATM implied volatility closed at 13.9%, fading from 16% on Friday, and trades below the 5-year average of 14.1%, which highlights the lack of pricing of elevated North Korea fears
  • Political commentators may warn that this time may be different but markets only price a modest concern with tensions in the region having existed for decades and ultimately blow over; see more here
• U.S. and South Korean military exercises from August 21 may keep tensions elevated while seasonality and Tuesday’s public holidays in some European countries may keep bunds from fully unwinding geopolitical risks in the very near term
• Beyond geopolitical risks, there are limited fundamental catalysts for further rally and the second half of August will see focus on the return of supply in Sept. and the next major event risks (Jackson Hole on Aug. 24-26 and ECB meeting on Sept. 7)
• As highlighted on Friday, the U.S. swaptions market priced close to zero Korean risk premium; see more here
• NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

To contact the reporter on this story: Tanvir Sandhu in London at tsandhu17@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma