Marketing Communication
Group Economics
Euro Rates Weekly
Macro & Financial Markets Research Kim Liu +31 20 343 4669 kim.liu@nl.abnamro.com
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19 June 2015
Short maturing bonds exhibit much lower volatility than during the crisis years Intraday yield volatility of 2y bonds is significantly lower than 10 and 30y bonds Volatility of 10y peripheral bonds has decreased significantly compared to crisis-levels However, 30y bonds of virtually all eurozone countries still exhibit crisis-level volatility Accommodative monetary policy has dampened volatility of short term bonds As the ECB will remain in easing mode, we think that short bonds will continue to provide the best protection in volatile markets
And the supply monitor: Belgium, Holland and Italy will enter the primary market. Gross supply is expected to be light. How to position in times of high volatility?
2y Bund volatility is lower than in the crisis years
Last week, we argued that current volatility in 10y Bunds
In bps
compares to the same levels as we have seen in the eurozone debt crisis and Lehman fallout (see here for the full publication). With a Grexit looming and with QE having
40 30
distorted the market significantly, we expect a prolonged period of heightened volatility. In this weekly we go one step further and asses which areas on the curve offer low volatility
20 10
and therefore give protection in times of stress. To assess these relations, we turn to the same method we adopted in our latest note and focus on intraday volatility.
0 Jan-07
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Jan-13
Jan-15
2y DBR daily yield volatility
Lower volatility exhibited in short maturing bonds The graphs below show the intraday yield volatility of 2, 10 and
Source: Bloomberg
30 year Bunds. The graphs show that volatility in 2y maturing bonds is currently much lower than during the crisis years.
10y Bund volatility is comparable to crisis levels
Whereas during the crisis years, intraday volatility peaked
In bps
above 30bps, the current intraday volatility in 2y bonds is
40
actually limited to low single digit levels. Conversely, volatility exhibited in 10 and 30y maturing German bonds is still comparable to market conditions at the height of
30 20
the eurozone debt crisis years and Lehman collapse. This confirms our belief that the current level of volatility in longer maturing German bonds is consistent with highly stressed periods.
10 0 Jan-07
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10y DBR daily yield volatility Source: Bloomberg
Insights.abnamro.nl/en
Bloomberg: ABNM
Jan-15