Citi predicts rates volatility will tumble during World Cup season, recommending short volatility trades as trading activity slows.
Citi analysts published a bearish note on rates volatility, explicitly targeting the MOVE index which measures implied volatility of US Treasury options. The World Cup season is expected to reduce trading volumes and event risk, compressing option premiums and driving the index lower.
Citi expects the MOVE index to decline during the World Cup season as implied volatility in Treasury options compresses due to lower trading volumes and reduced event risk.
Investors can sell interest rate volatility through options strategies such as selling strangles or straddles on Treasury futures, or by taking short positions in volatility ETNs linked to the MOVE index.
Citi analysts forecast a decline in interest rate derivatives volatility, pinning the bearish call on the upcoming World Cup season. They argue that the tournament historically saps trading volumes and reduces event risks, compressing option premiums. The bank's note advised clients to position for a lower MOVE index through short volatility strategies.
Citi's analysts observed that the World Cup season historically leads to lower trading volumes and fewer high-impact events, which depresses implied volatility in interest rate options.
Major sporting tournaments like the World Cup often distract market participants, reducing activity and dampening volatility across asset classes, especially in rates and currencies.
The MOVE index tracks implied volatility of US Treasury options. A bearish call on rates volatility means the MOVE index is expected to fall, reflecting a calmer environment for bond yields.