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GILT TECHS

(Z1) Double Bottom Reversal

BONDS

Gilt/Bund spread 6.4bps tighter

EURO-STERLING
EURO-STERLING: ###POV: EUR/GBP VOL MARKETS JUST GETTING STARTED
-Despite EUR/GBP call vols rising sharply over the past week or so (EUR/GBP 3m
Smile curve is the most skewed in favour of calls since at least the beginning
of the year), risk reversal measures may still have further to climb as traders
become more cognizant of the risks surrounding a 'no-deal' Brexit.
-1-yr riskies (one of the contracts that capture 'Brexit day' on March 29th
2019) today touched the highest since late 2016 after Liam Fox warned of the
odds on a 'no-deal' outcome. Nonetheless, the skew in favour of EUR/GBP calls
would have to more than double to rival 2016's highs of 3.265 vol points.
-Butterflies have begun to take this into account: the 10-delta 1y butterfly
contract touched the highest in a year today, but would have to almost double to
rival the levels seen in 2016.
-Due to this week's run-up in implied vols, the ratio between 1Y realised and
implied vols has dropped to the lowest since 2015, which may force those looking
to hedge any fallout to seek low, or no, premium options such as flexi-forwards
or options with KO barriers.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com