JPMorgan Econ FI-Interest Rate Derivatives The sun is the same, in a relative...-106951220

SriniRamaswamyAC(1-415)315-8117PhilipMichaelides(1-212)834-2096NorthAmericaFixedIncomeJPMORGANsrini.ramaswamy@jpmorgan.comphilip.michaelides@jpmchase.comStrategyJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLC08March2024IpekOzil(1-212)834-2305ArjunParikh(1-212)834-4436ipek.ozil@jpmorgan.comarjun.parikh@jpmchase.comJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLCInterestRateDerivativesThesunisthesame,inarelativeway,butvolislower•Centralbanksacrossbothsidesofthepondarelookingformoredatatocorroboratedisinflationarytrends,whichishelpingtopreservepolicyuncertaintyatelevatedlevels.Atthesametime,otherfactorshavebecomelesssignificantandpolicyexpectationsareparamountintermsofdrivingyields.Thishascausedyieldstobevolatileonaday-to-daybasis,butalsomean-revertingandultimatelyrangeboundoverlongertimeintervals•Inmeanrevertingmarkets,volatilityisintheeyeofthedelta-hedger.Thereissignificantvolatilityforadaily(orevenmorefrequent)deltahedgertomonetize,whilethereissignificantcarrytobeearnedbyaninfrequentdeltahedgerwhoencountersfarlessvola-tility.Historically,impliedsgetpressuredlowerinsuchperiods,representingasignifi-cantheadwindforlongvolatilitypositions…•…weturnneutralonvolatilityinmostsectors,excepton30-yeartailswherewearecomfortablerecommendingaless-frequentlydeltahedgedshortvolposition-sell3Yx30Yswaptionvolatility•Rangebo...