U.S. Rates Volatility Gears Up for Aging Business Cycle to Turn

A surge in U.S. rates volatility may have legs as traders stare at the prospect of a full easing cycle by the Federal Reserve.

With the life expectancy of the ageing business cycle uncertain, bets on short-term volatility in the rates swaps market would benefit if recessionary forces take hold to drive the Fed on a path to steep rate cuts. However, if policy makers can convince the market to remain patient after one cut and the macro-economic backdrop supports that case, then strategies betting on a pull back in volatility would perform well.