Equities Stumble As VIX Term Structure Keeps Steepening

Tyler Durden's picture

S&P 500 futures (ES) ended practically unchanged (though cash was down ~5pts) on relatively weak volume but decent average trade size - thanks in large part to the entirely ubiquitous rampathon into the close. A less-than-8pt range in ES saw the standard larger block sizes come through into the close as we ramped. Stocks were supported by USD weakness (-0.35%) but commodities ignored it (as did Treasuries). The front-end of the VIX term structure was the ramping-weapon choice today once again collapsing to red as S&P 500 futures were driven up to unchanged (and Friday's VWAP). The VIX term-structure has is its steepest in over three months and has steepened its most in 20 months over the past 5 days. HYG (also levered for a ramp) surged once again (to last week's key VWAP) squeezed this afternoon as its short-interest reaches record high levels (as it seems every HY manager is hedging via the ETF since the underlying has become increasingly illiquid) with some big blocks going through. Rates overall oscillated in a narrow +/-2bps range today (not exactly the big rotation) as we suspect, given the chatter of IG issuance this week, that last week's weakness was more rate-locks and hedging (as we have seen time after time) than asset rotations. Overall, today was an equity catch-down day to risk-assets overall.

 

S&P 500 Futures lifted to Friday's closing VWAP then dropped into the close - though ranges were minimal...

 

Equities caught down to credit today - but noteworthy that futures fell after Friday's cash close so an UNCH futures close looks 'better' than the -4.5pt S&P 500 cash close...

 

Average trade size is showing a similar pattern of rising into a crescendo turning point...especially when overall volume is light as it was today (suggesting dominance of small-lot algos to enable big lot exits).

 

VIX term-structure continues to steepen as hedges are rolled out past the debt-ceiling deadline...

 

The USD swung from being up 0.2% to down 0.35% on the day - somewhat supportive of a more positive tone in stocks...

 

 

In general today was a catch down day to broad risk-assets (right) but the ETFs (specifically VXX and HYG) were pushed and pulled to hold the SPY ETF up into the close...

 

with HY Credit beating beta-adjusted...

as its short-interest reaches record levels (perhaps pushing those hedgers into puts)

 

At what point does cost of borrow outweigh liquidity premium and force uncomfortable hedgers to unwind foreced overweight cash positions? Especially as the odd divergence between advancing HY issues and IG issues is becoming extreme...

 

Charts: Bloomberg and Capital Context

Bonus Chart: The shorts continued to be squeezed to be the drivers of the epic performance in the Russell... they started to get ahead early in the afternoon but nope...saved again...