Rates Vol Viewpoint: US vol – Midterms key 2H theme

Research evidence excerpt

Rates Vol Viewpoint: US vol – Midterms key 2H theme

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Rates Vol Viewpoint

US vol – Midterms key 2H theme

Dynamic of vol beyond geopolitical risks 15 June 2026 Corrected

The dynamic of US rates vol over 1H was mainly driven by geopolitical risk, with the Rates Research

transmission mechanism flowing through the oil dynamic (with a causal relationship United States

between Oil vol & vol across other asset classes - see report Oil driven vol regime, 2 Bruno Braizinha, CFA

June '26) and the repricing of policy expectations across major central banks. Rates Strategist

BofAS

As geopolitical risks fade and US-Iran deal is reached, the calendar driven risk associated +1bruno.braizinha@bofa.com646 743 7012

to the US midterm elections may take center stage as it rolls into shorter expiries. Medium Eleanor Xiao

term (into mid ’27), the potential for the recent reflation wave to fade may be a more Rates Strategist

significant macro theme (see report Higher reflation likelihoods vs 10yT yields, 2 Jun ’26). BofASeleanor.xiao@bofa.com

Midterms election risk near term

Despite the relatively idiosyncratic behavior of volatility historically around mid-term Glossary

elections, we do note a pattern where vol drifts lower (over the summer) into c.10 weeks a/a-/a+ - ATM/ATM-/ATM+

prior to the election (early Sep), finds some support beyond that and into the elections, ATM - at the money

and is on average supported between the election and the inauguration (Exhibit 1). BE - breakeven

c. - circa or approximately

Exhibit 1: Patterns in 1y1y, 1y10y and 1m10y vol around the past 6 midterm election cycles DM - developed markets

Recent pattern suggests vol starts to reflect election risk c.10 weeks prior to the elections EM - emerging markets