Volatility

October 31st, 2013 10:05 am | by John Jansen |

Volatility as measured by swaption vol is better bid today than it was prior to the FOMC statement yesterday. However, vol has been cheapening since the release of the September non taper statement and so viewed in the context of that move the move post FOMC is minimal. One trader noted that there were rumors in the market over the last month of substantial vol selling by large money managers. The same trader did note that in a big picture view vol appears to be cheap when viewed against the level of rates. Swaption vol has retraced much of the summer move and now rests at levels last seen in late May when the 10 year note traded at 2.05 percent. So he thought that given the 10 year is at 2.50ish vol is cheap currently. Finally there is talk that MBS types have gotten chopped up in the recent decline in rates and that those clients would possibly have some need to buy convexity but there is no evidence of such a trade yet.

 

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