BofA Global Research-US Rates Watch Vol views – highest levels since the GFC
Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies. BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 12 to 13. 12472570 US Rates Watch Vol views – highest levels since the GFC Volatility at highest levels since the GFC In Vol and mixed signals from late August we argued that implied vol levels were back in line with what we saw as fair, both on the left side of the grid and for intermediate expiries on the right. In a context of persistent mixed signals on macro data, we argued that these fair levels provided scope to use rates volatility as a hedge for tail risks. Since then, volatility has spiked to the highest levels since the GFC, supported by further hawkish communication from the Fed, the UK budged shock, extremely challenging liquidity conditions and high uncertainty (see Exhibit 1). The market dynamic around the last CPI print was yet another example of the sort of negatively convex moves which are becoming more frequent in this context (whereby the market overshoots on bearish dynamics across assets - see A negatively convex market from June 2022). These also suggest that volatility is likely to stay elevated for longer. Exhibit 1: Realized and implied 10y rate volatility Volatility gauges are at one of highest levels post GFC Source: BofA Global Research; Bloomberg BofA GLOBAL RESEARCH Significantly, in a recent note we looked at how liquidity has impacted the recent dynamic of real yields and inflation breakevens (BEs). We find that the dynamic 10y BEs have been dominated by liquidity driven bear-tightening moves (accounting for 50% of the recent dynamic) where the real yield leg leads in the selloff. This is quite abnormal, historically bear-tightening moves are an outlier, with frequencies around 10%. We are reaching very attractive levels for backend real yields, but remain are reluctant to fade these given hard-landing risks, poor liquidity and a challenging supply/demand backdrop for TIPS (see Hard landing & liquidity challenges: tailwinds for higher real rates) To add to all these, we are seeing dollar funding condition starting to tighten into year-end, as we noted in USD funding pressure into year end. On all of these counts, the view seems to be for continuing challenging conditions with very low appetite for risk, one sided markets, lower liquidity and higher volatility. There are silver linings, however: 1040701001304070100130160190220Sep-08Sep-10Sep-12
BofA Global Research-US Rates Watch Vol views – highest levels since the GFC,点击即可下载。报告格式为PDF,大小0.43M,页数13页,欢迎下载。
