JPMorgan Econ FI-Interest Rate Derivatives The election enters the hearts and...-108165431

SriniRamaswamyAC(1-415)315-8117PhilipMichaelides(1-212)834-2096NorthAmericaFixedIncomeJPMORGANsrini.ramaswamy@jpmorgan.comphilip.michaelides@jpmchase.comStrategyJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLC10May2024IpekOzil(1-212)834-2305ArjunParikh(1-212)834-4436ipek.ozil@jpmorgan.comarjun.parikh@jpmchase.comJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLCInterestRateDerivativesTheelectionenterstheheartsandmindsofoptionstraders•Yieldsremainedhighlystablethisweek,butgiventheupcominginflationdataaswellasRetailSalesnextweek,weturntacticallyneutralonvolatilityandrecommendunwindingoutrightbearishgammapositions•ThisMondaywasthefirsttimethattheNovemberelectiondaterolledinsidethebench-mark6Mexpirywindowintheswaptionsmarkets.Conceptually,theelectionpremiuminvolmarketscanbecharacterizedbythreecomponents-avolpremiumassociatedwithcrossingtheelectionintothefirstpost-electionday,adifferentincrementalvolpremiumforsubsequentpost-electiondays,andthenumberofpost-electiondaysthataredeemedtomatter.Byexaminingtherelativeperformanceof6Mexpiriesversus3MexpiriesonMondayaswellasoverthecourseoftheweek,wecaninferthefirsttwo-inthe10-yearsector,forinstance,optionsmarketsarepricingin8additionaldaysofpremiumforelectionday,andanincrementalpremiumof1.5daysforeverysubsequentpost-electionday,foratotalof~12.5additionaldaysasofThursday’sclose...