Buy Stocks, Buy Bonds: Carry Orgy Leads To "Buy Everything" Binge Session, And Today's Compression Opportunity

Tyler Durden's picture

To think, just as stocks had started to demonstrate some semblance of normalcy we get... today. Whether it is due to some unfounded rumor that Bernanke will say something surprising tomorrow, or disclose something that he is unprepared to disclose, we are seeing another carry fueled binge resulting in a total divergence (or technically convergence) between the two traditionally inversely correlating asset classes: stocks and bonds. As the chart below demonstrates, while the two had been trending in perfect unison yesterday, today we are seeing a substantial decoupling between the 2s10s30s butterfly, which is also indicative of bidding interest focused on the 10 year, and thus is an indicator of a smoothing of the treasury curve: something traditionally associated with stock market weakness. But not today. Which is why at this point a compression trade seems warranted with an up to 40 ES equivalent point pick up.

Butterfly vs ES:

The same seen just by looking at the divergence between the 10 Year and the ES:

And the cross asset binge in which the latest reload in the USD carry trade (not the Repo-GC one: that is back to 3 bps) is once again used to literally convert USD weakness into asset class gains. Across the board. And with profit taking happening in PMs today, the bulk of free capital is fleeing into the below 3 core assets.

h/t Capital Context