As investors navigate the tumultuous waters of rate volatility, Citi’s latest strategy takes a cautious stance, especially when it comes to gamma positioning as we head into April. Historically a month characterized by a downturn in short-dated volatility, April presents a pattern that tacticians and investors alike should not ignore.

The phrase “April showers bring May flowers” is often associated with the renewal and growth of spring. In the financial markets, however, April has frequently ushered in a decline in short-dated volatility. Citi’s analysis shows that in 15 out of the last 19 years, short-dated vol has fallen during April, a trend that only saw significant deviation in years like 2009 and 2022. These years stood out as outliers in what might otherwise be considered a predictable seasonal pattern.

The Federal Reserve’s strategy of “early but gradual” easing also plays a pivotal role in this context. As the Fed embarks on a cautious path, gently loosening its grip on the reins of monetary policy, investors might find themselves at a crossroads. Citi’s tactical bearishness on gamma during this period is a reflection of both historical trends and current monetary policy direction.

For market participants, this implies a need for a more nuanced approach to rate volatility. As short-dated vol dips, those positioned for a bearish gamma may find themselves better aligned with the anticipated market conditions. It’s a time for vigilance and strategic adjustment, ensuring that positions are calibrated to not only weather the typical April decline but to potentially capitalize on it.

As with all market trends, the past does not guarantee future results, and the exceptions of 2009 and 2022 serve as stark reminders that in the realm of finance, outliers can and do emerge. Nevertheless, equipped with historical insights and a clear understanding of the Fed’s current stance, investors can approach the month of April with a measure of confidence, ready to adjust their sails to the prevailing winds of rate volatility.