Halister News

(Bloomberg) -- A rise in GBP risk premiums via implied volatility given the mix of political and policy uncertainty may see an inherent vol floor emerging, Bloomberg strategist Tanvir Sandhu writes.

• This may be best expressed via long-vega and short-gamma profile to avoid theta losses given low realized vol, with 1m10y realized vol at 2.8bp/day
• GBP rates gamma remains close to all- time lows given subdued realized vol; even with the fragile political backdrop and forthcoming Brexit negotiations, it’s in line with global cross-asset low vol dynamics with persistent AUM chasing carry via short-vol strategies
• The tail risks of both a soft Brexit and a messy Brexit with no deal have increased but yields will likely remain range-bound for now, pulling down gamma, with rates caught between political instability, inflation risk via weaker GBP FX and potential softening Brexit/austerity, 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