JPMorgan sold a EUR5 billion notional (USD4.4 billion) deep out-of-the-money interest-rate swaption to BNP Paribas on Monday, according to Richard Jackson, euro swaptions trader at JPMorgan in London. Traders called it the biggest trade of the year in the euro swaption market. The transaction gives the French bank a two-year option to enter a two-year swap with JPMorgan, where BNP has the option to receive a 4% fixed-rate pay out. Two-year forward rates are now at 5.5%. A euro swaptions trader at the French bank in London declined comment.
Market officials speculated the trade was spurred by changes at JPMorgan and not on behalf of a client. "They are passing books between traders and are just cleaning up some positions," said one trader in London. Another said low volatility makes the trade attractive for BNP Paribas, although the trade appears to have been instigated by JPMorgan. The cost to enter a two-year option on a two-year swap was 13.8% when the trade went through.
Jackson declined to say why the bank sold the swaption, but did acknowledge there has been some internal movement. Previously, JPMorgan maintained one euro swaption book, run by Martin Winnick, but split the operation into two separate books at the start of the month. Winnick was out of the office last week. "Instead of having one big unwieldy book, we feel we can make more money on two separate books," Jackson said. Winnick and Jackson now each run a separate book. The move is a promotion for Jackson, who had previously traded the Swiss-Scandi swaption book and before that had been a junior trader on the euro swaptions book.
