USD Rates Vol Spread Near Top of Dovish Fed Pricing: Charts
Source: BFW (Bloomberg First Word)
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(Bloomberg) -- The steepness of the U.S. interest-rate volatility curve shows dovish Fed pricing near top of two-year range ahead of Jackson Hole summit and Sept. FOMC, underscoring risk of a flattening pullback, Bloomberg strategist Tanvir Sandhu writes.
Alert: HALISTER1- See chart here of 6m10y vs 6m2y swaption normal implied vol spread, against 2y forward 1m rate (inverted), used as a proxy for the terminal rate
- See 1-year regression analysis here; R^2 at 0.70, y=-10.681x+29.672; investors using the vol spread to hedge any hawkish Fed re-pricing amid upcoming event risks could set off flattening of vol curve
- U.S. OIS curve currently assigns 43% probability of 25bps rate increase by Dec. 2016 vs 0% 1-month ago
- U.S. 2y fwd 1m rate at 0.98%, near 50% retracement from the highs seen during the Fed taper tantrum of 2013
- NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for First Word. 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