| --- |
| 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 |
| ocrElapsed: 0.0 |
| 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 |
| |
