Morgan Stanley Fixed-Global Macro Strategy US Rate Volatility Screener-110730884

M UpdateGlobal Macro Strategy | North America US Rate Volatility ScreenerWe analyze price action in US interest rate volatility markets, particularly in OTC (vanilla, curve, and forward vol) and CBOT options. Data are as of October 9, 2024. Morgan Stanley & Co. LLCFrancesco GrechiStrategist Francesco.Grechi@morganstanley.com +1 212 761-1009 Top Trade Idea in US Rates Volatility: l Maintain long 9m30y straddles, delta-hedged: We think the right side of the table presents an asymmetric trade ahead of where (1) strong CPI could lead vol to rally, but (2) the desire to hedge against political risks could reduce the downside in the case of inflation weakening.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.Key TakeawaysGamma was higher this week, with 1m expiries rallying 10-20bpv Expiry term structures flattened, while right-side vol outperformed left-side productsCurve vol gamma rallied, in part due to implied correlations Forward vol was higher, with 1y forwards screening cheap against midcurves and vanillaOctober 10, 2024 02:47 PM GMTM Update2 Vanilla VolatilityVanilla vol surface• Gamma was higher this week, with 1m expiries rallying 10-20bpv (see Exhibit 1 and Exhibit 2 ) • On 1y lookbacks, gamma products are at the upper end of their ranges (see Exhibit 6 ) • On an implied/realized basis for 1w and 1m lookbacks, the right side of the surface screens rich to the left side (see Exhibit 8 , Exhibit 10 , Exhibit 12 )• Swaptions with 3m expiries have positive vol roll-down across tails, most notably so for 2y tails Exhibit 1: Current vanilla ATMF implied volSnapshot of vanilla ATMF implied vol1y2y5y10y30y1m123.3139.2130.9120.1113.13m117.3122.5115.4106.798.76m119.8118.6109.6102.794.11y117.4114.6107.0100.591.82y110.4107.7102.797.589.43y105.6103.499.595.487.75y100.398.295.491.984.710y91.889.786.682.776.3TailExpiry Source: Bloomberg, Morgan Stanley Research Exhibit 2: 1-week change in vanilla ATMF volChange in Vanilla Swaption Vol (1w)Change: 2/10 to 9/101y2y5y10y30y1m9.017.221.522.721.63m(1.0)4.14.65.65.26m2.43.53.54.03.11y0.93.34.13.52.72y2.22.13.02.52.23y1.92.22.32.11.85y1.41.41.51.30.910y0.2(0.2)0.60.80.5TailExpiry Source: Bloomberg, Morgan Stanley Research Exhibit 3: Current implied daily bp moveCurrent implied daily bp move1y2y5y10y30y1m7.88.88.27.67.13m7.47.77.36.76.26m7.57.56.96.55.91y7.47.26.76.35.82y7.06.86.56.15.63y6.66.56.36.05.55y6.36.26.05.85.310y5.85.65.55.24.8TailExpiry Source: Bloomberg, Morgan Stanley Research Exhibit 4: Change in implied daily bp (1w)Chan