Bund Put Skew Stays Rich Into ECB Meeting on Low Flip-Flop Risks
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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2539Z GR (European Central Bank)
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UUID: 7947283
(Bloomberg) -- Bund straddles show expectations of a relatively quiet ECB meeting this week, while the skew remains biased to the downside, where Draghi may reiterate his message from the Sintra speech and insist on the need for prudence and persistent monetary stimulus, Bloomberg strategist Tanvir Sandhu writes.
- August 2017 bund straddle, which expires Friday, has breakeven of about 5-6bps (equivalent to strike levels at about 160.70 and 162.30, spot ref. 161.40)
- Bund put skew has richened as the ECB’s concessions on wording has evolved, as indicated here; see chart here of September skew
- Near four-sigma move in bunds following Draghi’s Sintra speech was warranted given the limited risk premium that was seen in the front end; see more here
- While the fair value for bunds was only modestly rich prior to Sintra (vs extreme valuations prior to 2015 bund VaR shock), a further selloff toward 70bps area may see bunds cheapness stretched
- 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
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
Tickers
2539Z GR (European Central Bank)
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UUID: 7947283