Convexity

RBC: "We Are Seeing A Complete Breakdown In The Model"

"...the current (ongoing) breakdown in the USD is representative / driving some short-term and nascent deleveraging of legacy ‘reflation’ trades as per the sudden-death of the central bank "policy divergence" story last week - which had been the primary Dollar bull-case driver over the past year..."

Here Is The "Catalyst" For The Market's Inexplicable Surge: A $17 Billion Trade Gone Wrong

"I’m worried that this stock ‘melt-up’ move is extraordinarily mechanical right now - almost entirely the aforementioned forced-covering, not high conviction induced-buying - and may be sending a 'false signal' which is potentially dragging-in new buying on the breakout to new highs.  This could lead to a scenario where a market can 'collapse under their own weight'."

RBC: "Be Prepared For Another 'Vol-Control' Deleveraging Wave"

"At this frantic vol buying pace, with VIX +17% on the day, it won’t take much longer until further mechanical deleveraging is triggered from these extremely popular retail and ALM vehicles  Long story short, be prepared for another deleveraging wave (which could be happening ‘real time’ as I send) the longer vols stay at these levels, bc they’ve just been ‘stuck’ so low in recent weeks."

ECB Preview: What Wall Street Thinks Mario Draghi Will Say Tomorrow

While expectations are low from Thursday's ECB meeting,  it may ultimately boil down to Draghi’s communication about asset purchases. Any hint of QE tapering would spur a large-scale sell-off in the rates market, according to most Wall Street strategists. Here is what else the sellside thinks will happen.

"The System Simply Isn't Working" - Hugh Hendry Warns Of 1930s-Style "Dramatic Fulcrum Point" In Europe

"...we have the precedent from a much earlier time (the 1930s) when the defection of just one member from a currency union caused the system to unwind rapidly. And we can clearly sense the seeds of another popular political revolt in other member countries; a flurry of upcoming elections and referendums provides an immediate catalyst...We believe we are approaching a dramatic fulcrum point in public opinion in Europe."

Equity Convexity Is Back "In Play" - A Reminder Of How We Got Here

The market continues to “buy into” growing long-term narrative that CBs are shifting from notional “flow” of QE purchases to yield targeting / curve steepening goals and desire for more fiscal policy.  To anybody being intellectually honest, this should be interpreted in the long-term as “a path to tightening.”  Long-end weakens, curves steepen.

BofA Stunned By Record VIX Roundtrip; Fears "Fragile Market"

In recent months, BofA notes that the speed of mean reversion in the VIX has been particularly striking by historical standards. Since the end of QE3, VIX spikes have had very little persistence, generating low cumulative volatility relative to the previous 25 years, underscoring BofA's thesis of a fragile market that features rapid jumps from states of calm to states of stress and back.