MOVE 3-month Option Volatility Index Hits All-time Low (Bond Market Bernanke’d!)

The  Merrill Lynch Option Volatility Estimate 3-Month has just hit an all-time low.

mov3m

The MOVE index is a yield curve weighted index of the normalized implied  volatility on 3-month Treasury options. It is the weighted average of volatilities on the CT2, CT5,  CT10, and CT30.

Even since Fed Chair Ben Bernanke started ZIRP and QE in 2008, continued by Janet Yellen, interest rate volatility has subsided to an all-time low under current Chairman Powell.

Not a great time for volatility traders!

ichimov3

US Residential Construction Spending Slumps For 6th Straight Month As US Banks Report $251 Billion of “Unrealized Losses” On Securities Investments in 2018

Today is a double whammy for bad news for the US economy.

First, The Census Bureau monthly construction spending report reveals that highway and street spending rose 11.7% in January. The biggest decline was communication spending.

constspending

BUT, US residential construction spending slumped for the 6th straight month. It is beginning to resemble “The Matterhorn” plunge of the 2000s.

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The second whammy is the FDIC report  revealing that US banks reported $251 billion of “unrealized losses” on securities investments in 2018, the most since 2008.

US-FDIC-Banks-unrealized-losses-2018-Q4

For a less grim chart from The Federal Reserve (and a different metric), here is US Commercial Bank Liabilities Net Unrealized Gains (Losses) Available for Sale.

unreLVVL

Double whammy!

whammy

 

US Real Personal Spending Crashes In Dec, Largest Decline Since 2009 (Core Inflation Declines To 1.7% YoY, Consumer Sentiment Declines)

Bah humbug!

US Personal Consumption Expenditures (PCE) crashed in December to its lowest MoM reading since 2009.

pcedec18

On the inflation front, core PCE price growth YoY remained steady at 1.9% with the PCE Deflator declining to 1.7% YoY.

ecofrid

Consumer sentiment declined in February along with ISM New Orders.

ecoconsent

But at least University of Michigan’s Buying Conditions for Houses rose in February, or it is just a blip in a downward trend.

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This looks like the end of The Fed’s Quantitative Tightening.

US Real GDP Rises To 3.1% YoY, 10Y Treasury Yield Rises (Growth Stocks Continue To Rise Relative To Value Stocks)

The advanced US GDP report is out and it is a positive. YoY Real GDP growth rose to 3.1%.

ecoq4

It’s a major win for the Trump administration, which surpassed its 3% growth goal.

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Consumer spending, which makes up two-thirds of the economy, was solid but still a slight disappointment as confidence was hurt last year by the stock market swoon.
Non-residential investment held up with a 6.2% gain and R&D spending surged, which could have positive impacts on productivity gains and wages.

It’s a Goldilocks report for the Federal Reserve: inflation near target, slower but solid growth. This reinforces the patient approach to interest rates.

Still, bond market bets that the Fed will be on hold all year are a bit less sure in the wake of the 4Q numbers. Yields on 10-year Treasuries rose in the wake of the report.

ust10gdp

The Russell Growth index spread over the Russell Value index resumes its rise.

russellvg

But the Russell 3000-1000 spread (size) actually has declined.

russell30001000

 

Global Yield Curve Inversion (Same All Over The World)

An interesting chart of the 30-year sovereign yields less Fed Funds rate reveals that much of the world is in a state of global yield curve inversion. (Graph courtesy of the great folks at Crescat Capital).

crescat30fed

While the US is not in a state of yield curve inversion (except for the 1-5 segment), the US remains (for the moment) is positive territory.

30302uscurve

I prefer using the 10-year Treasury Note for curve analysis rather than the 30-year Treasury Bond.

One might observe that Treasury volatility measures are quite low … again.

movetyvix

So, yield curve inversion is the same all over the world. The US seems to be on track to invert as well.