HALISTER1: Long Belly of 5s10s30s Bund Fly as Lagged Fall in Volatility: SG

Long Belly of 5s10s30s Bund Fly as Lagged Fall in Volatility: SG

(Bloomberg) -- Tighter range in bund yields makes selling the wings in the 5s10s30s bund fly attractive, especially as this fly has so far lagged the drop in implied vol, Societe Generale strategist Jamal Meliani writes in client note.
  • Recommends buying RXU6 vs OEU6 and UBU6, target -15bp, stop -3bp
  • Lower rates volatility typically lowers the term premium in long-maturity rates and at the same time lowers the convexity premium in ultra-long-maturity rates
  • Hard to see anything that might push bund yields sustainably higher over the summer, while long-anticipated target for 10y bund yields at -15bp/-25bp constrains the downside potential
  • Tighter range in bund yields going forward is set to drive gamma even lower
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Jamal Meliani (Societe Generale SA)

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