Volatility Numbness As Central Banks Keep QE’ing

There are three prominent measures of volatility: VIX for the S&P 500 index, TYVIX for the 10-year Treasury Note, and MOVE (Ml Option Volatility Estimate Index). All three show an interesting pattern. The stable volatility patterns prior to the massive Fed intervention starting in Q4 2007. That never ended.

vols

Here is the massive Fed intervention and the US Treasury 10Y-3M curve.

fedrtates

Nothing has been the same since the Q4 Fed (and other central bank) intervention to fight The Great Recession.

cbas1

And we are back to rate cutting (according to Fed Funds Futures data) despite the jawboning (or “Talk-talk” from Fed members).

talktalk

The expected path of interest rates (orange line) looks like a Viking ship.

vikingship

 

Grim Fandango! U.S. 2-Year Swap Spread Turns Negative (First Time Ever!!)

As central banks like the US Federal Reserve try to counter a sagging global economy (and preserve asset bubbles), strange things begin to happen. Like the US 2-year swap spread going negative for the first time ever!

(Bloomberg) — The U.S. 2-year swap rate moved below the 2-year Treasury note’s yield for the first time ever Tuesday after 3-month dollar Libor’s latest drop, turning the 2-year swap spread negative. It was the last tenor on the swap spread curve to fall below zero.

Currently around -0.25bp, 2-year spreads dropped as low as -0.5bp, tighter on the day by 1bp; spread is tighter by ~12.5bp since the start of May

  • 3-month dollar Libor fixed lower by 2.16bp at 2.31125 Tuesday, lowest since August 2018
  • A combination of higher general collateral rates, overseas selling and hedging flows have weighed on front-end spreads over the past couple of months;

2yssp

Here is the US Dollar Swap Curve and the Swap Spread curve.

swapsccc

Is this a Grim Fandango?

grim-fandango

Bitcoin And Gold Zooming Through The Roof (While Switzerland’s Yield Curve Is Negative At 30-Years)

Once again, crypto currencies are generating interest. Check out Bitcoin~

cryptoaa

But this time around, Bitcoin has a competitor: Gold. Both are racing through the roof!

goldbitcoin.png

All is well? Check out the Swiss sovereign curve (in Swiss francs!) Negative at 30-years and in.

swissmiss

The Swiss apparently love Facebook’s crypto entry, Libra. So much so that Facebook is setting up their crypto shop in Switzerland

zuke_2_43R9aAc.width-800

Gold Achieves Liftoff as Prices Rocket Toward $1,400 an Ounce As Fed Rate Cut Probability Increases

(Bloomberg) Until this month, gold held claim to the title of being one of the most boring asset classes. Prices barely budged and popularity was fading.

Now that’s all changed. Over the past few weeks, a clear bull case has started to emerge. A key resistance level has broken. Investors are pouring money into exchange-traded funds. The dollar is weakening and the Federal Reserve seems to be charting a path to cut interest rates. China is on a buying spree to stock up reserves.

“It has been a long wait,” said Mark O’Byrne, research director at GoldCore Ltd. “Gold has finally broken out, we nearly touched $1,400.”

Gold rose as much as 2.5% Thursday to the highest since September 2013, and traded at $1,381.64 an ounce at 1:03 p.m. in London.

Yes, gold prices are rising as the odds of a Fed rate cut increase.

goldfedssss

The odds of a Fed rate cut (from Fed Funds futures) is 100%. Only the size of the cut is unknown. But it looks like two cuts by September.

ratecuts

It looks like there is a disturbance in the force (or at least Fed Funds 30 day volatility).

fedfundsskw

Look at  the 10 Delta Call at December maturities for gold!

goldskew.png

Gold ETFs are booming again!

goldetfa