It is not a good time for Janet Yellen. The one time Bernanke-replacement favorite who many were confident would be the next Fed chair, and whose odds in the initial stages of the Fed race were 75%, is so far out of the running one can almost ignore her candidacy. At least if the market makers behind Paddy Power, and the Fed Chair market betting participants have it right. As of today, her odds have slumped to the lowest in the life of the contract, or 29.4%, below the 36.4% from mid August. The leader by an even greater margin: Larry Summers whose 2/5 odds, or 70%, mean that absent a material change in rhetoric, will be the person Obama announces as Fed chairman replacement over the next month.
Has the market priced in a Summers' reign? If CS' Harley Bassman is correct, not even close:
"Taper" induced volatility will be a fond memory for investors if Mr. Summers is selected as the nominee (whose record as a consensus builder speaks for itself).
The bottom line from a Convexity stand point is that a Summer's FED could take us in a different direction from a Yellen FED (that would almost certainly be a continuation of the Bernenke FED).
So while Septaper may come and go, markets may soon be digesting the volatility induced by the Summers of their discontent.