Three points on Asia vols - Deutsche Bank

"The main vol shock has come in Asia’s carry currencies. FX vols across G10 and EM have largely fallen over the past month, making the vol bounces in INR and IDR more stark," notes Deutsche Bank strategist Mallika Sachdeva.

Key quotes:

"Asia’s carry darlings have been shaken from their low-vol slumber, as assumptions about official management have been questioned. For much of this year, both central banks kept currencies in tight ranges by building reserves. The market likely assumed that reserve buffers would be drawn down during any FX stress, and has added large FX unhedged positions in both bond markets. However, officials do not appear to have tapped reserves in September, with reported headline reserve changes not suggesting any USD supply. With slow growth, constrained monetary and fiscal stimulus options in both economies, investors could worry that the policy bias is shifting towards tolerating weaker FX. It is still early to fade INR and IDR vols till the policy bias is better revealed."

"Markets still believe more in USD/CNH downside. Despite an over 20 big figure jump in USD/CNH from trough to peak, the calm in risk reversals has been notable. The steadiness in riskies reflects the negative spot-vol correlation in USD/CNH since the summer, which is different from the past and the rest of the region. The vol market has largely looked through the USD/CNH bounce, treating it as a correction from stretched levels. Given the combination of still tight capital controls on individual outflows, corporates with USD to offload on rallies, and a heavy political calendar, the market has not jumped on the depreciation bandwagon this time. We like to position for some USD/CNH downside into yearend via put spreads (3M USD/CNH 6.60/6.50 costs 40bps indicatively)."

"Vol in SGD is a buy. The downtrend in basket vols has weighed on SGD vol, but we think they look good value ahead of MAS. SGD vol premium is trading in negative territory (realized 1M vol measured using ABSI SGD daily fixings), and the absolute vol base remains low (1M < 5 vols). After a long lull, there is a more active debate into this week's MAS meeting about a potential change in forward guidance or a surprise tightening. We remain on the dovish end of expectations, anticipating no change in language or policy from MAS. In either eventuality, we think there is a chance of a larger than 0.5% move in USD/SGD (current overnight implied pricing), particularly given the US CPI print on the same day. We like to buy front-end SGD vols."