Humped Vol Surface of Swaptions on 1-Year Rate

In a previous post, we noticed that the ratio of implied vols of 6m1y and 6m2y swaption was 4.4 standard deviations from its historical mean. The ratio retraced but still 3.3 std devs away.

It is also worth noting the current hump on the vol surface on the 1-year rate. Typically, the implied vol of a swaption on a given tenor decreases monotonically with expiries. Today however, volatility peaked at 6-month expiries -- i.e., the vol of 6m x 1y swaptions of all strikes is high relative to same-strike options of shorter or longer expiries.


(Click to enlarge)