U.S. Rate Volatility Primed to Drop With April Lull on Horizon
- Volatility has sunk in April nine times over past 10 years
- Japan buying flows after fiscal year-end can push yields lower
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If seasonal patterns are anything to go by, volatility in U.S. rates could slump next month.
In nine of the past 10 years, a volatility gauge based off 3-month 10-year at-the money swaptions fell in April. And there’s little reason to suppose that the market won’t witness a similar drop this time around in gamma -- a derivative that measures how quickly the price of an option moves. For that reason, Citigroup Inc. strategists are advising clients to hedge by selling a so-called straddle that involves both bullish and bearish options.