Quite a few FX analysts expected the Federal Reserve to hike rates than what was priced in by investors, leading to a higher expected path for short term rates over the coming 10 years.
The US Treasury yields have risen 7-10bp over the past week and the curve has bearishly steepened, driven by a combination of fundamental and technical factors. Recent data indicate that recessionary risks have receded somewhat.
Market depth in 2-year US Treasuries remains poor following a redefinition of minimum tick size on its interdealer trading platform. Meanwhile, liquidity across most other tenors has recovered from its year-end lows.
JPM’s gamma fair value model suggests implieds in shorter tails look cheap relative to longer tails.
Take a look historical performance over the past two decades suggests the vol surface tends to flatten (shorter tails and expiries outperform) when metrics of inflation expectations rise, particularly in later stages of the cycle when markets are focused on policy rates.
Given these results, and taken with recent Fed communication considering a move to average inflation targeting, we like tail curve flatteners; buy 3Mx2Y vs 3Mx30Y ATMF swaption straddles. Courtesy: JPM
Currency Strength Index: FxWirePro's hourly EUR spot index is flashing at 73 levels (which is bullish), hourly USD spot index was at 80 (highly bullish) while articulating at (14:02 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex


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