Halister News

(Bloomberg) -- While the U.S. yield curve has steepened most dramatically between 2s10s and 2s30s, it is 2y5y bp vol which offers the more attractive entry point, BNP Paribas strategist Timothy High writes in a client note.

• USD 2y5y implied volatility should correct from cheap levels to the pre-Brexit regime and begin trading with a positive beta to the forward rate
• Buy USD 2y5y ATMF straddles at 82.5bp (411c forward premium), target 102.5bp, stop 75bp, carry -1.75bp/1-month
• 2y5y bp vol is low relative to the 2y5y forward rate
• Fiscal stimulus, if likely to be enacted, could result in a quicker rate-hike tightening cycle than was expected prior to Trump’s election
• Similar to the cheapness of 2y5y bp vol to the 2y5y forward rate, the 2y5y/2y10y bp vol ratio is at a 5%-7% low to the pre-Brexit regression line