USD Rates Payer Skew Reflects Little Conviction in Tax Reform
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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UUID: 7947283
(Bloomberg) -- USD rates payer skew remains flat and yet unconvinced of tax reform. The debate is likely to dominate markets in coming weeks with more noise than news.
- See chart here of spread between USD 3m10y 25bp OTM payer vol and 25bp OTM receiver vol
- Immediate upside in yields may be more limited with 2.40% gaining some interest (May/July highs 2.40-2.42%); beyond a limited drift higher in yields is likely given the synchronized global selloff leading to potential reduced foreign demand
- Treasury rates vol remains low vs binary nature of tax reform (see example structures here), Phillips curve that kicks-in which disrupts vol selling strategies/equity rally
- Low inflation has helped underpin the Goldilocks trades of low bond yields and rally in credit and equity markets
- Fed’s reaction function in the near term is likely being dominated by continued above-trend growth, improvement in labor markets and easy financial conditions rather low levels of inflation
- 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)
To de-activate this alert, click here
To modify this alert, click here
UUID: 7947283