Has the US election risk been priced in too high by investors, Bank of America wonders

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Key Takeaways

  • 💰 Bank of America Securities warns that US election risk premia is becoming richly priced in FX markets
  • 🌏 FX carry factor may perform well post-election due to contained volatility
  • 📊 Significant risk premium is priced in the foreign exchange markets, especially in Asian emerging markets
  • 🔮 Median major FX pairs have priced a 108% premium relative to the average of 2016 and 2020
  • 📉 Emerging Asia vols have not performed during US elections since 2012 according to BOA
  • 💵 Bank of America suggests short USD/CNH strangle to fade rich volatility premia
  • 📈 USD/CNH traded 0.5% lower at 7.0621 at 04:35 ET (08:35 GMT)
  • 💻 The article number is 1597407
  • 📊 Try the training with labeled-news.csv data
  • 📝 This content is reprinted from a blog post by "PoeticalJustice" at https://wwwblogs/PoeticalJustice/p/9682627.html
  • 📌 Author’s views do not represent the website, contact author for reprints and cite the original source at https://www.elefans.com/xitong/1728181164a1148392.html

Bank of America Securities Warns Against Overpriced US Election Risk in FX Markets

Bank of America Securities has issued a warning about the rich pricing of US election risk premia in foreign exchange (FX) markets. This caution comes as a notable observation, especially in relation to Asian emerging markets where a significant risk premium is being indicated. As the median major FX pairs show a 108% premium compared to the average between 2016 and 2020, investors are advised to pay attention to the implications of this elevated pricing.

Focus on FX Carry Factors Post-US Election

Following the US elections, experts suggest that the FX carry factor might perform well due to expected contained volatility. This strategy could prove beneficial post-election, offering opportunities for investors to navigate the markets effectively. Additionally, Bank of America recommends considering a short USD/CNH strangle to counteract the rich volatility premia currently observed in the market.

Insights and Recommendations from BOA

In line with their analysis, Bank of America points out that emerging Asia vols have not shown significant performance during US elections since 2012. Furthermore, with USD/CNH trading lower at 7.0621 at 04:35 ET (08:35 GMT), there is a real-time illustration of the market dynamics in play. For further exploration, individuals are encouraged to engage with the labeled-news.csv data for training purposes.

Author’s Note

Readers are reminded that the content provided in this article is a reproduction of a blog post by "PoeticalJustice". For additional details or reprints, it is recommended to contact the author directly and cite the original source at https://www.elefans.com/xitong/1728181164a1148392.html.

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