Read on Twitter
US Swaption/Rates Vol off highs but still elevated
Reasons:
Economic data ahead; CPI tom; Fed data dependent
UST supply, 3y 10y 30y auctions this wk
US ylds, off highs, still close to higher end => risk premium in vols
Market v/s Fed disconnect on Rate Hike
1/4
Reasons:
Economic data ahead; CPI tom; Fed data dependent UST supply, 3y 10y 30y auctions this wk US ylds, off highs, still close to higher end => risk premium in vols Market v/s Fed disconnect on Rate Hike1/4
SEP-based June FOMC important => till then would have got two more NFPs & Inflation data till May incorporating Apr/May base effect + stimulus based spikes => little kink around 3m in vol curve Vol Skew mildly softer but still topside nervousness (convexity hedging)2/4
Chart: 3m Expiry Vol across Swap Tenors => Front end swap tenors least volatile as anchored by Fed Fund/OIS/T-Bill yields Chart: 3m10y Swaption Vol v/s 10yr US Yield: higher yield => higher vol as reflected in Vol Skew3/4
@bondstrategist
https://twitter.com/VaradMarkets/status/1371717468276727810?s=20
Basic Swaption recap:
Option on USD Interest Rate Swap (IRS); Call (Payer); Put (Receiver)
Two time horizons:
Tenor of underlying swap
Maturity/expiry of option
Vol Cube => Vol across Strike vs Tenor vs Maturity
3m10y => 3m Expiry Option on 10yr USD IRS
Option on USD Interest Rate Swap (IRS); Call (Payer); Put (Receiver) Two time horizons: Tenor of underlying swap Maturity/expiry of option Vol Cube => Vol across Strike vs Tenor vs Maturity 3m10y => 3m Expiry Option on 10yr USD IRS
