Rates’ Futures Skews Extend Downside Build as Korea Jitters Wane
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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2539Z GR (European Central Bank)
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UUID: 7947283
(Bloomberg) -- Treasury and bund futures skews are fading the Korea risk premium and are now re-building the downside.
- Sept. bund skew has flipped back to the downside (see chart here), which has an expiry date falling in the middle of Jackson Hole from Aug. 24-26
- Oct. contract, which expires on Sept. 22, covers the whole of Jackson Hole (in case Draghi speaks on Saturday) and ECB meeting on Sept. 7 (see chart here highlighting the paring of call skew)
- TY Sept. futures low-delta put skews have started to re-build over the last two days; see chart here
- Selective hedges make sense amid fading flight-to- quality rallies with U.S. and South Korean military exercises from Aug. 21 posing headline risks while thin summer markets may exacerbate moves; this may keep bunds from fully unwinding geopolitical risks in the near term
- The Korean market response has been modest with domestic implied volatility below/near long-term averages, highlighting that the pricing of an all-out conflict in the peninsula remains remote; 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
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
Tickers
2539Z GR (European Central Bank)
To de-activate this alert, click here
To modify this alert, click here
UUID: 7947283