Lack of supply keeps short-end euro rates vol high

Hedge funds and corporates rush to hedge potential rises in euro interest rates – but sellers aren’t there, say traders

Swaptions traders say short-end euro interest rates volatility is set to stay elevated as demand amongst corporates and fast money for hedges against rate rises continues to outstrip supply.

Though the European Central Bank (ECB) has yet to announce any rate hikes in the face of rising eurozone inflation, there is wide expectation that rates will rise at the central bank’s next policy meeting in July.

While many have decided to sit on the sidelines until the market calms down, bank swaptions