US Rate Volatility Screener

Investment Rating - The report does not explicitly provide an investment rating for the industry. Core Insights - The volatility surface has increased, particularly in upper left products, indicating a higher demand for these options [3][7] - The expiry and tail term structures have flattened, suggesting a shift in market expectations regarding interest rate movements [27] - Curve volatility remains elevated and is perceived as rich on an interest rate basis, while forward volatility appears mixed and relatively cheap compared to midcurves and vanilla volatility [3][46] - Implied volatility for U4 expiry CBOT options has decreased but remains above the 75th percentile of realized volatility, indicating persistent market uncertainty [3] Summary by Sections Vanilla Volatility - The vanilla volatility surface has shown an upward trend, particularly in upper left products, with 1-month and 1-year lookbacks indicating that these products are at the upper end of their historical ranges [7] - The implied/realized basis for a 1-week lookback shows the surface is trading cheap, while for a 1-month lookback, only upper right side products are trading above parity [7] - Volatility with expiries greater than 6 months exhibits positive roll-down across tails, especially for belly tails [7] Expiry Switch - The expiry term structures have flattened, particularly in the short-term 3-month to 1-year switches, which are now above parity [27] - A re-steepening of the expiry term structure is anticipated as the market approaches the cutting cycle, although uncertainty regarding the depth of this cycle may lead to short expiry volatility outperforming in the near term [27] Tail Switch - Tail term structures have also flattened, with notable inversion on 10-year to 30-year tail switches, indicating increased uncertainty regarding shorter rates compared to longer rates [32] - All tail switches remain inverted across the term structure, reflecting a shift away from parity since Q4 2023 [32] Curve Volatility - Curve volatility has increased, with the expiry term structure showing an upward slope through the next 3 months, while forward swap curves are inverted through the next 6 months [46] - The surface is trading slightly above parity on an implied/realized basis, indicating a rich pricing environment [46]