Halister News

(Bloomberg) -- JPY rate volatility market is skeptical about the bear-steepening or bull-flattening potential of the JPY 2s10s curve, and that offers attractive levels to position for these scenarios, Societe Generale strategist Adam Kurpiel writes in client note.

• JPY short rates vol is trading well above its historical average and very close to long rates vol
• Shift of policy mix towards fiscal easing, with persistently accommodative monetary policy, is consistent with a bear- steepening of the yield curve
• Buy JPY 3m10y payers ATMF, sell 3m2y payers ATMF; PV01- weighted, close to zero-cost
• Strategy would generate profits at expiry if higher JPY 10y rate drives the JPY 2s10s curve steeper
• If JPY rates decrease from current levels, both options would expire OTM and the loss on the trade would be limited to the close-to-zero premium paid at inception