Anyone notice (or have explanations) on the selling of upside volatility in the 30 year bond (ZB) options ??? I see 13% vol on ZB right now whereas last week it was closer to 20%.. 30 yr is up almost a point and the 131 May calls are trading a tick higher!! I see the skew is towards the put side... In three trading days, I have some near term close otm options that have lost half their value and the contract is above closing levels on 4/3. Also, I notice a difference in ZB vol versus TLT vol. TLT is higher vol. I assume this has to do with different maturity. I set up a CTD calculator and figured ZB represents the 2/12/2025 (that is 16 yr bond).. Is this correct? BTW... anyone know a good bond trading forum?
ZBM9 (or USM9) current CTD is 7.5 Novie 24s (T 7.5% 11/15/2024). From what I can see (and I have not been focusing on the USM9), vol in the longer tails has been coming off quite aggressively. Part of the reason looks to be the general optimism, but some is due to the general perception, I think, that the back-end mkt is a lot cleaner now, with no skeletons left in peoples' cupboards, like in December. As to the skew, there has been increasing appetite for OTM payers/puts recently. I think it has to do with people starting to try to fade QE and the Fed's buying spree. I don't know what TLT is. That's my take on it anyways...
1) Financial commodities "panic" to the downside. That's why the implied volatility of puts can increase rapidly when the market moves lower. 2) Institutional investors like to sell covered-calls and sometimes buy puts with the call premium. That pressures call premiums and supports put premiums.
It's old news, amico... We have gone through similar episodes in EUR, GBP and, finally, USD (funny how everything converged to look like GBP). Somewhat different specific dynamics (pensions, CMS, PRDC), but the main driver, i.e. relative lack of balance sheet/capital still prevails and trumps everything, in my view. You tell me when you think we see appetite for capital-intensive carry trades coming back into the mkt. If ever, that is? Until that happens, there's will be no love for bonds, methinks (unless of course the Fed gets hungry).