HALISTER1: Fade Inversion in EUR Rates Vol Term Structures: Commerzbank

Fade Inversion in EUR Rates Vol Term Structures: Commerzbank

(Bloomberg) -- Short-gamma implied vols in EUR ultra-long tails still seem rich compared to medium-term expiries, Commerzbank strategist Markus Koch writes in client note.
  • Fade currently inverted term structures through a long calendar trade
  • Sell 3-mo. EUR straddles vs vega-neutral buying 6-mo. expiries in EUR 30y tails
    • Look for the curve ratio to drop from currently 104% into double digit territory
  • Volatility delivered by ultra-long EUR IRS is going to level off with major event risks out of the room and the Fed unlikely to provide tangible guidance for now
  • Other risks, for example Italian banks, still justify a normally sloped delivered term structure (derived from IRS forwards) with no quick fix at hand
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Markus Koch (Commerzbank AG)

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