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BofAML Warns Rising Treasury Volatility Suggests Either Higher Rates "Or" Lower Stocks

Tyler Durden's picture




 

The broad-based measure of Treasury bond volatility - MOVE - has broken higher, and, as BofAML's MacNeil Curry notes, confirms a base and change in trend (to higher or more volatility). With the month of December traditionally a strong month for the MOVE Index and Treasury volatility in general, Curry warns there are two ways the volatility can move higher - either higher rates or lower equities.

Via BofAML,

We look for Treasury volatility to head higher to 81/87 and potentially beyond

 

THERE ARE 2 WAYS THE MOVE CAN HEAD HIGHER: Higher rates OR lower equities.

We expect 10yr yields to run to the Sep highs at 3.00% and eventually beyond. However, we are very focused on 5yr yields, specifically the 1.451%/1.473% zone as KEY. Through here completes a 2m Head and Shoulders Base, 1.670%/1.659% and potentially beyond.

The other way the MOVE/Treasury volatility can rise is from a DECLINE IN equities. Yesterday's price action in the S&P500 was a concern, resulting in cash a break of month long wedge support (1807) and ESZ3 breaking the 1799.75/1799.00 pivot.

However, for damage to transpire to the larger uptrend, we need to see a minimum of a close below the 21d in cash at 1786. Back above 1799.75 in ESZ3 is needed to indicate stabilization and a resumption higher.

 

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Tue, 12/03/2013 - 16:03 | 4211243 Ness.
Ness.'s picture

I want both.

Tue, 12/03/2013 - 16:08 | 4211274 nope-1004
nope-1004's picture

You will get neither, because this will force the Fed to increase QE, which will lower rates and stoke stawks.  BAM didn't address inflation and loss of faith in the currency.....

 

Tue, 12/03/2013 - 16:30 | 4211322 Ham-bone
Ham-bone's picture

Taper...no taper.  Trim purchases by $10 B or $5 B/mo???  Starting some undefined time w/ some undefined reduction curve w/ some unknown metrics for it's follow through...I get that flow really matters but there is a big stock that could come back in on us like a tsunami...and if the Fed wants inflation, unleash the cracken of reserve dollars sitting fallow overseas!!! 

Seems the elepant in the room (sorry to mix metaphors) is the petro-dollar - Treasury creating Trillion plus new dollars annually past 5yrs into a world ever more rapidly moving away from a single $ based currency for buying oil.  So this $4-$7-$??? Trillion of FX reserves being held outside the US that was generally earmarked for buying oil is doing so less and less.  But this money is to be used for something...buying something among those nations no longer buying oil in dollars...even those nations previously exporting significant oil but due to higher demand @ home export less/ none.  Too many dollars floating in a system requiring less?  Even if it's 10%, 20%, 40%...you quickly get the idea we are talking $400 B or $800 B or $2 T moving back into US equities/ RE /CRE / and yes, bonds (all likely w/ a bit of leverage).  As the yuan has now displaced the Euro as #2 held FX, all these dollars in reserves are freed up to go somewhere...Things move slowly until sometimes they suddenly move quickly.

Seems the Fed could "taper" some or maybe even all (?) purchases into an environment such as this and point out that QE has succeeded and no longer is neccessary???  They can point to all the eager buyers...

Junk away and riddle this with holes as I'm just noodling this (not saying will happen, just that it could)...seems ZH is one of last free markets, at least for the free market of ideas.

Tue, 12/03/2013 - 16:02 | 4211244 FieldingMellish
FieldingMellish's picture

or.... both higher rates AND lower stocks!

Tue, 12/03/2013 - 16:13 | 4211285 booboo
booboo's picture

home prices will take a hit

Tue, 12/03/2013 - 16:02 | 4211246 buzzsaw99
buzzsaw99's picture

tbtf zombie fuckers

Tue, 12/03/2013 - 16:06 | 4211269 wisehiney
wisehiney's picture

Who believes this BS? These fucks can't even fool the SEC.

Tue, 12/03/2013 - 16:08 | 4211273 Sudden Debt
Sudden Debt's picture

I want a beer.... BRB!

Tue, 12/03/2013 - 16:09 | 4211275 readyforit
readyforit's picture

They're waking up!! Quick, MOAR CNBC STAT!!

Tue, 12/03/2013 - 16:37 | 4211351 101 years and c...
101 years and counting's picture

if you put 3 piles of shit together, all you have left is 1 giant pile of shit and 2 stinky browns spots here the other 2 piles were.  enter bac of america countrywide merrill lynch.

Tue, 12/03/2013 - 16:46 | 4211368 BandGap
BandGap's picture

"I'd rather listen to Morgan Freeman talk me through masturbation than listen to a single word out of this lying scumbag's mouth." - Quote from another board.

Piles don't coalesce, they multiply.

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