Datasets:
title: 'House Oversight: Estate Documents (Nov 12) (HOUSE_OVERSIGHT_014760)'
source: 'House Oversight: Estate Documents (Nov 12)'
sourceUrl: https://www.justice.gov/epstein
date: '2026-01-01'
category: House Oversight
eftaNumber: HOUSE_OVERSIGHT_014760
ocrPages: 1
ocrChars: 3223
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parseTier: external-legacy
engine: engine undisclosed (ep-nov-12.greg.technology mirror)
externalSource: greg-ep-nov-12
externalLicense: not granted
externalCredit: ep-nov-12.greg.technology
externalUrl: https://ep-nov-12.greg.technology
Own FX vs rates vol: cheapen USD call with rates strangle We like owning USD calls against selling US rates vol. In particular, we recommend buying a EURUSD 3m 1.05 put for US$100 pips (off 1.0730 spot), partially financed with the sale of US$100mn 150bp-wide 3m30y strangle (sold at US$600k). While potential fiscal stimulus has already been priced into rates term premia and rates volatility to some extent, it is not sufficiently priced into the FX market, in our view: Rates skew in gamma on long-tails has moved decisively for payers, while EURUSD skew is just beginning to price in higher US rates (Chart 59). This suggests to us that the market may already be partially protected against higher rates in the long- end, such that a further selloff may not see as strong a rally in gamma on long-tails. • On the other hand, a further rally in the USD may catch investors under positioned and result in greater volatility in the currency markets. • A principal component analysis of rates (US, EUR and JPY) and FX vols highlight that US rates vols and USDJPY vol are expensive, while 3m1 Oy vol in EUR and JPY are cheap, along with EURUSD vol (Chart 60). While the cheapness of 3m10y vol in EUR and JPY can be explained by expectations of QE expansion in the two regions, we think that there is value in owning EURUSD vol. From a terminal rates perspective, we are comfortable selling a 150bp-wide strangle for the following reasons: • We believe the result of the elections are a game-changer for the outlook on the US economy. As such we have probably entered a new regime for US rates whereby we are unlikely to retest the historical lows in 30y rates recorded in Aug-16 (1.67%). This suggests little downside in selling an ATM-75bp receiver (1.66% strike). • In a scenario where US rates sell-off, USD is also likely to strengthen. The positive correlation between US yields and the USD has returned due to expectations for fiscal stimulus boosting economic growth. Furthermore, we would also argue that a substantial selloff in US rates. accompanied with USD strength may be self- defeating as it would put pressure on emerging markets and risky assets, thereby resulting in a flight to quality bid for USTs. The risk is that of large foreign reserve selling by EM central banks, putting upward pressure on US rates and downward pressure on the USD. Chart 54: FX vol just beginning to price impact of higher rates FX Option BofA-Implied Volatility and USD Swaption-Normal Implied Chart 55: Residual of FX and rates volatilities based on a ly PCA (*) 8 2.4 - 2.0 - 1.6 - 081 04 — 0.0 -
- 0.4 - 17NOV14 16FEB15 18MAY15 17AUGIS IGNOVS 15FEB16 16MAY16 PayerReceiver (bp) (2nd axis) — EURUSD % —-10 15AUG16 14NOV16 Source: BofA Merrill Lynch Global Research () payerReceiver = 3m30y 50bp OTM payer vol-50bp OTM receiver vol. EURUSD = 6m 25% OTM EURUSD put vol- 25% OTM call vol. 2 -2 - -4 -6 EURUSD 3m USDJPY 3m US 3m10y Jp 3m30y Source: BofA Merrill Lynch Global Research() Residuals derived from the first 2 principal components of FX and rates volatilities - based on a 1y Principal Component Analysis. 30 Global Rates, FX & EM 2017 Year Ahead | 16 November 2016 Bankof America Merrill Lynch HOUSE_OVERSIGHT_014760