Not all steep curves are the same

The understanding of the results curve is a major theme of the government bond market worldwide this year, but the BNP volatility strategist said that below the surface was slightly different in Europe and the US

First, both in Europe and the US, the price of volatility implied shows that the market is more concerned about the unin orderly movement in the results that have long been dating that is contrary to the unintended fall.

After last week, it wasn’t too surprising. But BNP said the VOL market in Europe positioned for a big step in the implicit Vol from January 2026, the key moment in the transition of the Dutch pension funds that were widely discussed.

They say that is that and the supply increased from Germany which caused Europe’s preliminary biases that were felt.

Conversely, “The US main driver seems to be on the supply side as an anxiety over the size of the deficit and the interest expense remains,” they said.

As for the short end, there is a greater difference in implicit volatility where the much greater movement is expected at the front end level in the US than Europe.

On the one hand, it is a logical dynamics. Front-end rates depend on the policy of the central bank, and the hope for the federal reserve rate pathway has swung a lot, and is likely to continue to do so, while the ECB seems to be detained this week and over the next few months.
Source: Reuters (Alun John)