GBP Rates Volatility Curve Inversion Approaches Brexit Lows
Source: BFW (Bloomberg First Word)
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(Bloomberg) -- Term structure of 10y-tenor GBP swaption volatility further inverts with 3m expiry vs 1y at lowest since Brexit as weakening currency flattens RPI curve, Bloomberg strategist Tanvir Sandhu writes.
Alert: HALISTER1- GBP 1y-3m 10y vol spread at -2.2bp/annual vs post Brexit low of ~-7bp/annual; 1y-2m at -3.7bp/annual vs ~-11bp/annual; see chart here
- GBP gamma has outperformed over the past week with 3m2y +0.72bp/day at 2.26bp/day and 3m10y +0.55bp/day at 4.46bp/day (see swaption spreadsheet here) with U.K. long- end rates underperforming EUR and USD
- Short-term correlation between 3m10y vol and GBP TWI has flipped negative with sharp re-pricing of inflation expectations induced via deepening currency losses pushing nominal rates higher, see chart here
- GBP OIS forwards currently pricing 28% probability of a 10bp BOE rate cut by Dec. vs 59% 5 days earlier, assuming 3.7bps Sonia-base rate corridor
- 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.
Source: BFW (Bloomberg First Word)
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UUID: 7947283