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BofA: Lower Rates vol in '24…But Curb Your Enthusiasm

US SWAPTIONS

Bank of America write likely “key drivers for the dynamic of volatility in '24 include: (1) a wide range of outcomes; (2) erosion in the utility of duration for portfolios; (3) Fed policy and the dynamic of neutral rate expectations; and (4) the broader risk backdrop.”

  • “Broadly, we favor a long bias in '24, lower vol with underperformance of the left vs right side, short gamma vs intermediates at levels >10bp for 1m10y vs 1y10y, and long vega positions at mid-70bp levels.”
  • “A wide range of outcomes continues to justify hedging the tails (10yT > 5.5% in bearish scenarios, or < 4% in bullish ones), and higher vol of vol.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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