Winter is Coming! The Fed And Volatility Suppression (Stocks And Bonds)

Volatility for the 10 year Treasury note (TYVIX) has been suppressed since The Fed hammered down on vol starting in late 2008.

The same holds true for equities and the VIX. Suppressed since 2008.

But what happens IF The Fed (and other central banks) begin their great unwinds?

Winter is coming!


The Hysteria Curve: US Treasury 10Y-2Y Curve Slope Declines To 78.6 BPs As 10 Year Soveriegn Yields Decline In Americas and Europe

Choose your hysteria to explain the Treasury market: 1) debt ceiling crisis, 2) hurricane (Global Warming) crisis, 3) North Korean nuclear attack crisis, 4) Trump’s Russian collusion investigation crisis, 5) the DACA (“Dreamer”) crisis, 6) Brexit crisis, 7) NAFTA crisis or 8) fill-in-the-blank crisis dejure. Please tune to CNN or MSNBC (and even Bloomberg) for the latest in hysteria.

Which ever portfolio of crises you select, we watching the US Treasury 10Y-2Y curve slope fall below 80 to the lowest slope since September 2016.


10 year sovereign yields in the Americas and Europe can down with the US falling around 10.1 BPS and Argentina down almost 40 BPS.1010

Gold prices are up since the 2016 election while the US dollar basket is down.


We are seeing a jump in equity and Treasury volatility, but not much.


Tune into MSNBC’s Rachel Maddow and Lawrence O’Donnel for particularly entertaining hysterical rants (like about Trump’s 2005 tax return).


US 10Y-2Y Yield Curve Declines On Yellen’s Uninteresting J-Hole Speech (VIX Declines As Well)

I read Janet Yellen’s speech at Jackson Hole. And it was so uninteresting that I decided to read the NY Times article entitled “Why Women Had Better Sex Under Socialism.”¬†Far more interesting.

Yellen largely defended post-crisis financial regulation and suggested to be careful with deregulation. She also expressed concern over Algo trading growth and a concern over a return of overoptimism.


After the hype about discussing something interesting faded away, the 10 year – 2 year yield curve slope fell to 83.689 basis points.


And the VIX remained muted.


True, the stock market rose today about 100 points then backed off a bit.


No mention, of course, of the out-of-control Federal spending (2x current tax receipts) that is contributing to staggering Federal debt increases.


Or the explosive growth in mandatory (aka, entitlement) spending since 2009.


She also didn’t mention the enormous wage growth gap in the US.


Or the lack of productivity since the financial crisis.


So in the words of Frank Drebin, “Nothing to see here. Please disperse.”


Like The Equity VIX, The 10-year U.S. Treasury Note Volatility Is Also Repressed (Take It To The Limit)

The CBOE CBOT 10 year U.S. Treasury Note Volatility Index (TYVIX) is repressed like the VIX index for the S&P 500.

However, this is only the 15th lowest volatility since 2003.

Battle of the Repressions! Stock market volatility is the winner in the stocks versus Treasury note volatility repression derby.

Janet Yellen and The Fed are practicing The Eagles song “Take it to the limit.”

And like The Dude in The Big Lebowski, “I hate the f***ing Eagles.”



Volatility Repression: VIX Hits 4th Lowest Level Since 1990

The Chicago Board Options Exchange SPX Volatility Index (aka VIX) just hit the 4th lowest since 1990.

In fact, the low VIX regimes are 1) May 2017 to today and 2) December 1993).

Of course, the current low volatility VIX regime is courtesy of The Federal Reserve and their low interest rate policies.

November and December 2006 was a third low volatility regime, shortly before the housing bubble burst. So, low stock market volatility is not necessarily a good sign.

Here is a closer look at VIX before The Great Recession and after, with The Fed’s massive intervention. No the VIX repression in 2005 and 2006. Then KABOOM!


Finally, here is a close-up of 2000-2008 showing VIX repression in 2003-2006.


And VIX has been under 10 only during period episodes such as December 1993, May-July 2017 and Nov-Dec 2006.


Let’s see what Janet and the FOMC do over the next twelve months and how that impacts VIX.