Euro inflation floors hit three-year low

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

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