Today the front month 30yr straddle settled at 1-17, 11 ticks lower from where it opened and a % vol of less than 7, around 6.80 or something like that. This is pretty much at an all-time low, and the scary thing is that paper sold about 4,000 of these straddles today. A couple of us were talking on the close. First of all, whoever is buying these straddles and vol in general for the past year or so has been getting smoked. Especially on a day like today, where the straddle decayed 11 ticks, and there is no way these option locals are making that back scalping futures (not with a 12 tick range). So, with the Fed at a turning point, possible fallout of the housing market, enormous supply on the horizon, maybe Chinese dollar-asset diversification, the list goes on. Why is absolutely no one worried? And there is no worry showing down the road, back month vol in the 30yr is only at 7%. The question is: who has been buying vol (maybe some type of bank desk) for the past year, why haven't they blown up? On the other hand, who is short so much vol that they stand to blow apart if one day vol explodes and opens at 12%? Lets speculate doomsday scenarios, always fun.
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Lack of bond market volatility
- Thread starter mcurto
- Start date
M-
I have been worried since the summer of 2003 when volatility went down the drain. It came back a little, but man, it's scary. I think it's just a dead time, perhaps a 'cycle' in the time realm of things.
Perhaps the 80's volatility will return once again fairly soon, the conditions, IMO are setting up for something like this scenario..
have fun down there
-c
I have been worried since the summer of 2003 when volatility went down the drain. It came back a little, but man, it's scary. I think it's just a dead time, perhaps a 'cycle' in the time realm of things.
Perhaps the 80's volatility will return once again fairly soon, the conditions, IMO are setting up for something like this scenario..
have fun down there
-c
The vol-line has been under 7 for a few days -- The front month has a few weeks of life and we saw an employment number on Friday. It's not much of a stretch to expect the combo to decay 10-12 ticks after the EMP and weekend decay. Coupled with a tight-range distro and they're going to be selling. The money made into EMP has been long delta/short gamma, and has been virtually every cycle. 1000s of contracts selling vol is certainly a depressant on the strips.
Add in the <4% stat-vols [orange-line on chart].
Add in the <4% stat-vols [orange-line on chart].
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Quote from ChiBondKing:
M-
I have been worried since the summer of 2003 when volatility went down the drain. It came back a little, but man, it's scary. I think it's just a dead time, perhaps a 'cycle' in the time realm of things.
Perhaps the 80's volatility will return once again fairly soon, the conditions, IMO are setting up for something like this scenario..
have fun down there
-c
I think we'll need another Russian crisis/LTCM to revisit the heady-days of 12-14% vols. Yields this low and a flat to inverted curve certainly don't help.
The Bond trade sucked today. What's with the huge bid/offers in the 5 yr. It never was like that until these black box mo fo's entered the market.
Quote from mcurto:
Today the front month 30yr straddle settled at 1-17, 11 ticks lower from where it opened and a % vol of less than 7, around 6.80 or something like that. This is pretty much at an all-time low, and the scary thing is that paper sold about 4,000 of these straddles today. A couple of us were talking on the close. First of all, whoever is buying these straddles and vol in general for the past year or so has been getting smoked. Especially on a day like today, where the straddle decayed 11 ticks, and there is no way these option locals are making that back scalping futures (not with a 12 tick range). So, with the Fed at a turning point, possible fallout of the housing market, enormous supply on the horizon, maybe Chinese dollar-asset diversification, the list goes on. Why is absolutely no one worried? And there is no worry showing down the road, back month vol in the 30yr is only at 7%. The question is: who has been buying vol (maybe some type of bank desk) for the past year, why haven't they blown up? On the other hand, who is short so much vol that they stand to blow apart if one day vol explodes and opens at 12%? Lets speculate doomsday scenarios, always fun.
Every buyer for a seller!! somebody will blow up...
I think we're seeing more transparency from the Fed than in the past, it's been kinda a sucker's game for the past couple years betting against them... Will things start changing? Well, we've been in a bull market in bonds for something like 10-15 years now, inflation, although there have been many scares, has been tame for that amount of time, recessions have becomes just slow downs and have become less frequent and shorter, and the American consumer is using credit like crazy, making consumer spending dependent on cheap money...
Somebody ain't sticking with the trend!!
At least a little better volatility today, but the 30yr straddle continued to get whacked before we broke, traded down to 1-12 before it found a bid. Did anyone see that enormous paper come in around 109-10, 5000 lot, 3000 lot, and then a bunch of smaller stops down to 109-08 or so. Was pretty fun to watch, of course if you are on the right side of it. Good volume for what was supposed to be a quiet Tuesday before the auctions and the rest of the supply this week.
Quote from mcurto:
At least a little better volatility today, but the 30yr straddle continued to get whacked before we broke, traded down to 1-12 before it found a bid. Did anyone see that enormous paper come in around 109-10, 5000 lot, 3000 lot, and then a bunch of smaller stops down to 109-08 or so. Was pretty fun to watch, of course if you are on the right side of it. Good volume for what was supposed to be a quiet Tuesday before the auctions and the rest of the supply this week.
I can't figure out this market anymore. On a day that I thought was gonna be sh*t, we carve out some decent ranges and volume. It just goes to show that anything can happen at anytime.
Quote from mcurto:
At least a little better volatility today, but the 30yr straddle continued to get whacked before we broke, traded down to 1-12 before it found a bid. Did anyone see that enormous paper come in around 109-10, 5000 lot, 3000 lot, and then a bunch of smaller stops down to 109-08 or so. Was pretty fun to watch, of course if you are on the right side of it. Good volume for what was supposed to be a quiet Tuesday before the auctions and the rest of the supply this week.
I dont see what all the fuss is about, it doesn't sound like THAT much is being auctioned off... If we're falling this much over a few billion, we're in trouble