Free Trial

Goldman Sachs: Mkt Seems To Underprice Switching Election Risk

US TSY OPTIONS

Monday saw Goldman Sachs note that "using history as a guide, vol market pricing for the month post-election appears roughly consistent with the average pick-up in volatility in switching years, but it is notable that most of that premium comes from the election itself and immediate aftermath, implying a reversion towards current volatility levels thereafter. While the immediate premium may be in part associated with expectations that a Biden victory is the most likely outcome (currently prediction markets imply a roughly 60% probability of a Biden victory), it may also reflect the risk of delays in tabulating results (which is seemingly more consistent with the relative lack of premium beyond the roughly week and a half post-election). The market, therefore, appears to be somewhat underpricing the risk of a switching election; relative to what is priced, history suggests that a Biden victory, and more specifically a Democrat sweep, is likely to result in a longer period of elevated rates market volatility."

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.