ICE BofA MOVE 1-, 3-month indexes spread highest since 2013 Trump election, positioning, postal voting elevate volatility
(Bloomberg) — Treasury options markets are pricing the Nov. 3 U.S. presidential election as one of the biggest isolated event risks in at least a decade.
The ICE BofA MOVE Index, which measures expected swings in Treasury yields across the curve, shows the spread between one- and three-month indexes rising to a level seen only once in the past decade. The latter captures the election between President Donald Trump and Democratic nominee, Joe Biden.
Investors’ nervousness about the potential for short-term turmoil can be seen in cross-asset volatility, particularly spreads for FX and Treasuries. Outside the U.S., the election is also starting to stress investors in the emerging world, and strategists and investors are urging caution as implied volatility rises.
The options markets on interest-rate swaps, commonly known as swaptions, also show traders are bracing for aggressive swings. A one-month option on the 10-year swap rates – which doesn’t start till a month’s time – has a terminal breakeven of 17 basis points. That implies a swing of down to 0.51% or up to 0.85%, from current level of 0.68%.
At least the MOVE index has been hammered-down by Fed monetary policy, including yesterday’s dot plot indicating QE Infinity!!!
Want more evidence that the real estate market is experiencing a V-shaped recovery from the Covid epidemic? Look at the rebound in US homebuilder optimism!!
(Bloomberg) — U.S. homebuilder optimism rose to a record in September, with low mortgage rates driving a housing boom that has boosted the pandemic economy.
A gauge of builder sentiment jumped five points from a month earlier to 83, beating estimates and hitting the highest level in 35 years of the survey, according to the National Association of Home Builders/Wells Fargo Market Index. It was 78 last month, which matched the previous record from 1998.
While it is easy to link the V-shaped rebound to lower mortgage rates, mortgage rates were low prior and during the Covid crash.
The more powerful explanation is the anticipation of a V-shape economic recovery.
Economic rebound like a monster! Well, maybe not like Dennis Rodman.
The current delinquency rate stands at the highest level since the recovery period after the last recession but still well below the 9% delinquency rate for CRE loans at the peak of the financial crisis.
However, there are signals in the data that some borrowers may be strategically defaulting on their loans which could feed a wave of foreclosures in the coming four to six quarters.
Las Vegas NV leads the US in 30 day delinquent office property loans.
Columbus Ohio, home of The Limited Stores brand, leads the nation in 30 days delinquent retail property loans.
Here is a shocking graphic. New York – Newark hotels have seen -62% decline YoY in appraised values whereas Los Angeles saw a -74% decline in appraised values of office space.
Total sales of commercial real estate has declined to the lowest since mid-2010 and The Great Recession.