Euro inflation floors hit three-year low

Traders point to lower volatility, but one big short is also blamed

euro-currency-inflation-falling

Options that protect against European deflation have hit their lowest level in three years, even as inflation expectations fall – a seemingly counterintuitive phenomenon that traders say is a symptom of declining inflation volatility. There are other theories, however, including the presence in the market of a London Whale-style trader who has been building a large short floor position.

By mid-August, the cost of a five-year, zero-coupon 0% euro inflation floor hit 16 basis points, according to

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