A thread explaining why the bond market is asleep and what wakes it up.

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The next chart shows the MOVE Index (Merrill Options Volatility Estimate). It is the “VIX of the bond market” and is near its lowest reading in history (which was set on July 30).

(1/10)
Should interest rates be this low? Consider these 2 charts.

The bond market often moves in tandem with commodities. But as the boxes show, that has not been the case recently.

Commodities are suggesting interest rates should be moving higher, but they are not.

(2/10)
* Top panel shows the SPX (log)
* Orange bars show the VIX’s close on days the SPX hit an all-time high (ATH).

VIX hit 26.57 when the SPX hit an all-time high on Sep-2. The VIX has never been higher with SPX at ATH.

Stocks are not exhibiting low levels of volatility.

(3/10)
Foreign exchange volatility hit a new low BEFORE the pandemic. But currency volatility has been on the rise lately and well off the pre-pandemic low.

No other markets are have low volatility levels like the bond markets.

(4/10)
So why is the bond market asleep?

The Fed, via Quantitative Easing (QE), has bought over $3.1 trillion of bonds since mid-March (bottom panel).

(5/10)
These purchases have rocketed the Fed’s holdings of fixed income securities to $6.3 trillion.

(6/10)
In a Nov 2010 Washington Post op-ed, Ben Bernanke explained the purpose of QE:

Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corp bond rates ...

(7/10)
... will encourage investment. And higher stocks will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

(8/10)
By buying massive amounts of bonds, the Fed is suppressing interest rates and encouraging investors to seek riskier investments. And by signaling that they “have investors’ backs” they are promoting speculation (as can be seen in the options market lately).

(9/10)
We argue a significant rise in rates would be a big negative for all markets.

What would causes this rise? Inflation. The one thing bigger than the Fed is the collective of the bond mkt. Inflation returning chases bond investors out faster than the Fed can "print."

(10/10)

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More from @biancoresearch

14 Aug
bloomberg.com/news/articles/…

He would be comfortable with inflation around 2.25% or 2.375%. The policy, known as average inflation targeting, would be a shift from the Fed’s current way of keeping prices stable, in which it targets 2% regardless of what happened in the past.

(1/4)
What Avg?

Below uses YoY chg in core PCE (orange) and the 6-mo Avg of this chg (yellow).

Kaplan's target has only been reached one time in the last 25 yrs, 06/07.

What would the reaction to Kaplan's comments if it was spun as "Fed ok with a 25-year high in inflation"?

(2/4) Image
To be fair, the Fed says they target headline. I would argue they really mean core.

The difference is largely gas prices.

Why core? Every time headline inflation surges because of gas prices, they call it a "tax" on the economy and back away from hiking rates.

(3/4)
Read 4 tweets
9 Aug
The most active @PredictIt now is VP betting, regularly over trading 1M contracts a day (bottom panel). Total Open Interest is 20.8M

Harris leads has always led. But she is going the wrong way and now under 50%. Rice and Whitmer are rallying. No one else above 5%.

(1/3)
The decision is expected next week

My interpretation of this price action, Harris is the default choice they will settle with but they are desperately looking anyone/someone else.

(2/3)
Remember our view ...

Betting markets aggregate all known information into one probability into a type of real-time poll.

Does mean they are right, but all the KNOWN information suggests these are the most likely probabilities.

(3/3)
Read 4 tweets
23 Jul
Today's case count hit 70k again ...

(1/6)
… led by the southern states ... but note some hope ... the seven day average (orange line) might be peaking.

(2/6)
Now for the bad news ... a potential new hot spot unfolding ... the upper Midwest. The 7-day average (orange) made a new all-time peak today, taking out its May peak.

(3/6)
Read 6 tweets
19 Jul
States making new high, or starting 2nd waves, they are headed by democratic governors here



Below is the states headed by republican governors making new high (orange line) or forming second waves.

This is not a partisan issue. @TBPInvictus

(1/4)
More states headed by republican governors

(2/4)
Still more states headed by Republican Governors

(3/4)
Read 4 tweets
19 Jul
The biggest problem with the CV19 discussion is it has become a substitute for political preference. Your opinion about the virus is nothing more than screaming "I'm a D" or "I'm a R."

Assuming the worst offenders disagree, let's go through the data
@TBPInvictus

(1/5)
Here are the states headed by democrats governors that have seen a new high in the 7-day average (orange line) in the last week.

(2/5)
More states making new highs with democrat governors

(3/5)
Read 5 tweets
17 Jul
US infections made a new record today, topping 70,000.

(1/5)

@chrismartenson @ErikSTownsend @MishGEA @ttmygh @EpsilonTheory
This is not merely more testing (bottom panel), but also a rise in the positivity rate (top panel). Meaning, the virus is spreading, not finding more via testing.

(2/5)
This is leading to a rise in COVID-19 related hospitalization.

At the current rate the US should set a new record by next week.

(3/5)
Read 5 tweets

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