Global Markets Daily Timing It Right — When to Sell Interest Rates Vol

Economics Research 18 September 2026 | 4:16AM EDT

Global Markets Daily: Timing It Right — When to Sell Interest Rates Vol

n The rise in yields year to date has so far come alongside relatively contained Friedrich Schaper | realized volatility across much of the curve. That said, there have been pockets of Goldman Sachs & Co. LLC higher implied volatility over the year, though these have generally been followed by vol under-delivering what was priced. n Implied volatility typically embeds a premium over realized volatility that on average results in positive returns to systematic vol selling. Year to date, such strategies generated monthly returns of around 1%, above the recent average. However, vol shocks pose risks, and some environments are more supportive for harvesting vol premium than others. n We use different models to help identify how favorable conditions are for vol selling. Specifically, we consider the level of implied volatility relative to macro fundamentals, changes in the pricing of growth and policy factors across a suite of macro assets, and implied vol versus what is predicted by a purely statistical framework. Using the forecasting accuracy of the different models as weights, we can then extract an aggregate signal about expected future returns to short-vol strategies across major tenors. n Our approach suggests that the current mix of moderately hawkish policy, solid growth momentum, and elevated macro uncertainty paired with a relatively tight vol premium is typically consistent with returns in the 30th-40th percentiles for selling vol on 5y and 10y tails, while greater premium further out the curve suggests a better backdrop for selling vol on 30y tails. n Going forward, greater Fed emphasis on addressing inflation risks could eventually reduce long-end yields’ sensitivity to energy prices. Increased confidence that fundamentals justify a baseline of limited policy tightening would likely provide a more generally supportive backdrop for vol selling strategies.

Timing It Right — When to Sell Interest Rates Vol

The rise in long-end yields throughout the year has for the most part come alongside relatively contained realized volatility. However, uncertainty around policy and the macro outlook has led to episodes of higher implied volatility. But with subsequent volatility often disappointing, that has meant that implied volatility at these points often underperformed what was subsequently delivered (Exhibit 1). Those points have often presented good entry points for investors to sell rates volatility, and year

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to date, such strategies generated monthly returns above recent averages (Exhibit 2).

The tendency for implied volatility to embed a premium over realized on average allows for positive returns to systematic vol selling strategies, as we have shown in the past. Delta-hedged short gamma strategies – i.e., selling short-dated swaptions to harvest this premium – are profitable when subsequently realized vol is lower than what was implied ex ante. We have presented different valuation metrics to identify the characteristics of environments in which vol selling tends to perform best. Here we put them together to generate an aggregate signal for when the time is right to sell interest rate vol.

Exhibit 1: Outside brief episodes, implied volatility mostly Exhibit 2: Despite the macro volatility, systematic outperformed what was implied recently vol-selling strategies performed well so far this year 1m10y Implied volatility vs ex-post 1m realized daily 10y volatility bp/day bp/day % Average Monthly Returns, 1m10y Short-Vol, Delta-hedged % 10 1m Implied Volatility 1m Delivered 10y Volatility (Ex-Post ) 10 2.5 Average Monthly Returns 2015-2025 Average

0 0 -1.5 -1.5 Sep-24 Dec-24 Mar-25 Jun-25 Sep-25 Dec-25 Mar-26 Jun-26 Sep- YTD

Source: Goldman Sachs Global Investment Research, Goldman Sachs FICC and Source: Goldman Sachs Global Investment Research, Goldman Sachs FICC and Equities Equities

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