One-week EURCHF vols surged to 27% on Friday compared to 19.75% on Thursday morning, and from 16.5% on Monday. Traders report that there have been no sellers of CHF options on any CHF cross. That’s a reflection of the sharp reversal in EURCHF last week, which traded as high as 1.1813 on Tuesday, and below 1.1100 Friday morning. One-month vols were trading at 21% mid from 17.5% yesterday, and 16.5% on Monday.
Traders noted that the one-year EURCHF, in CHF payout, had been trading at 19.5% mid, and add that sellers of vol at these levels should be aware that with one-month vols realizing at 27%, they could be facing a losing trade before they know it. They also added that flies (10 delta average vols) remained elevated and expect that few investors will be sellers in the coming days.
In the spot market, traders reported very shallow liquidity at existing levels and light volume. Several market makers suggested that legitimate buying interest only existed at 1.0500 on the cross, ahead of the US non-farm payrolls data and lack of confidence that the EU will resolve its debt crisis. Furthermore, traders are reluctant to be long euro or dollars against the CHF in the absence of further SNB announcements.
SNB first took action against the appreciating currency on August 3, cutting interest rates from 0.25% to 0%. EURCHF had been trading around 1.1000 at the time. Since then it has also increased sight-deposits, but not in the past two weeks.
Yields on short-term Swiss government debt also turned negative last week, meaning investors paid more for the assets than they would get back when the securities mature. The three-month bills were sold at a price of 100.19 and will be redeemed at 100.19, translating into a negative yield of 0.75%.