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Albert Edwards Asks If Bond Vol Can Surge As A Result Of Rising Bond Prices

Tyler Durden's picture




 

If we have to highlight one reason why we enjoy Albert Edwards' truly contrarian work as much as we do, it is for, among other things, self-deprecating humor such as this: "As an uber-bear I am used to being called a stopped clock. By contrast the market embraces a bullish forecaster however often they are shown to be overly optimistic... The market doesn?'t care that the IMF has been serially wrong and that its forecasts resemble a series of hockey sticks" (as we showed here).

That, however, is not the reason we point out an interesting point Albert brings up in his latest note titled '?Basket trade?' suggests "Sell everything and run for your lives” (which has nothing to do with Edwards being a correct permabear in a world in which the house of cards is kept standing day after day only thanks to over $10 trillion and rising in central bank liquidity, and everythning to do with this). The point is whether increasing volatility across all major asset classes (notably FX and increasingly so in equities) will finally spill over into bonds, but in an inverted way - one where unlike stocks where vol surges when prices crash, would see bond volatility soar as a result of matched surge in bond prices, something which as we showed earlier today is becoming an increasing concern as bond yields around most places in the world have tumbled to record lows.

  •     IRELAND SELLS 10-YEAR BONDS AT RECORD-LOW YIELD OF 1.63%
  •     GERMAN 10-YEAR BUNDS RISE; YIELD FALLS 2 BASIS POINTS TO 0.88%
  •     DUTCH 10-YEAR GOVERNMENT BOND YIELD DROPS TO RECORD-LOW 1.021%
  •     PORTUGUESE 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.942%
  •     FRENCH 10-YEAR GOVERNMENT BOND YIELDS DROP TO RECORD-LOW 1.214%
  •     U.S. 10-YEAR NOTE YIELD DROPS TO 2.296%, LOWEST SINCE JUNE 2013
  •     SPANISH 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.038%
  •     FINNISH 10-YEAR YIELD DROPS TO 1% FOR FIRST TIME ON RECORD

So without further ado, here is Albert "uber-bearish stopped clock" Edwards:

Given that once upon a time, I could actually do maths, I can sort of understand the concept of volatility (or vol as the practitioners like to call it!). I can understand what VIX is, as I can physically calculate something very similar myself using the 90-day standard deviation of daily S&P changes, which I am told is called realised vol (see left-hand chart below).

 

 

What I have never really been able to understand is why vol only rises when the market declines (see top right-hand chart above). But the chart and maths tell me that markets must rise in a smoother way than they decline - the latter being violent and often disorderly as years of gains are often wiped out in a few months.

 

I was chatting to my former colleague Helen Thomas who writes in her Blonde Money blog how ?"volatility is eating itself?", i.e. the rise in FX volatility is feeding into higher equity market vol. Helen believes that the missing part of the puzzle has been bond market vol, which has been relatively well behaved. It remains the overwhelming view of the market that US bond yields will rise ? see for example “Stick with consensus and sell Treasuries” ?- link. I discussed with Helen whether bond vol may indeed rise sharply, but in a way that equities never seem to do - in line with prices on the upside as higher FX vol sends equity prices lower. Blonde Money also points out a short study by the New York Fed which notes that when markets watch one another, this can cause volatility to propagate.

 

This reminds me of one of Andy Lapthorne?s constant refrains in presentations, namely that "corporate bond spreads are a function of VIX via the Merton Model?." Again I have no idea what he is talking about except that there are a set of dominos out there and when they start falling the whole lot could come tumbling down. Of course a key prop preventing this cataclysm remains the US economy- probably the only region where investors still have confidence in a self-sustaining recovery.

Which is hardly the case after yesterday's FOMC commentary, in which we learned the Cafed Crusader is now tasked with fixing not just the US but the entire global economy.

 

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Thu, 10/09/2014 - 10:05 | 5308312 LetThemEatRand
LetThemEatRand's picture

His name was Fonzannoon.

Thu, 10/09/2014 - 10:41 | 5308516 kito
kito's picture

HEY TYLER YOU FUCKING PUSSY!!!!! YOUR SITE HAS TURNED INTO A CLICK READ COMMENT FOR PROFIT MACHINE WITH NO SOUL. YOU CANT HANDLE THE TRUTH BECAUSE IT HURTS SO MUCH TO KNOW THAT YOU ARE NOTHING MORE THAN A SHELL OF THE ORIGINAL ZH. YOU ARE NO BETTER THAN MSM. YOU CREATE ISSUES WHERE THERE ARE NONE, ALL FOR THE PURPOSE OF GAINING THE VIEWERSHIP OF POOR BELOW AVERAGE I.Q. GULLIBLE MALLEABLE SOULS. YOU CONTINUE TO LOSE THE FOLLOWING OF INTELLIGENT INSIGHTFUL COMMENTERS WHO GAVE YOU LIFE. NOW YOU JUST SUCK THE BLOOD OUT OF THE COMMENTS SECTION ALL FOR THE MIGHTY DOLLAR THAT YOU SO OFTEN MALIGN. YOU ARE A FUCKING HYPOCRITE!!!!

 

FONZ!!! FONZ!!! FONZ!!!! FONZ!!!! FONZ!!! FONZ!!!

Thu, 10/09/2014 - 10:43 | 5308537 LULZBank
LULZBank's picture

Well, that escalated quickly.

Thu, 10/16/2014 - 22:42 | 5344828 CunnyFunt
CunnyFunt's picture

I expected a video clip, and all I got was a PRU ad. #soldouttothepccrowd

 

Fri, 10/17/2014 - 02:32 | 5345352 flyingpigg
flyingpigg's picture

edit: delete, wrong treadt

 

Thu, 10/09/2014 - 11:12 | 5308714 Gypsyducks
Gypsyducks's picture

Even ZeroHedge is turning into a steaming pile of dung.  My hope for the future is growing quite dim.   I wonder what views i should support to get myself banned next, this result is likely more satisfying than a boycott of my formerly favoriet site.         

"The first condition of progress is the removal of censorship."

"Censorship ends in logical completeness when nobody is allowed to read any books except the books that nobody reads. "

George Bernard Shaw

HIS NAME WAS FONZANNON

Thu, 10/09/2014 - 10:11 | 5308316 LawsofPhysics
LawsofPhysics's picture

"For every seller there's a buyer"

/s

 

LMFAO!!!  For the last time there is no "market".   Certainly not in any traditional sense. 

 

The shinning example of "success" in the E.Z. --> GERMAN 10-YEAR BUNDS RISE; YIELD FALLS 2 BASIS POINTS TO 0.88%

0.88% for fucks sake...

LMFAO!!!

Thu, 10/09/2014 - 10:23 | 5308414 Bell's 2 hearted
Bell's 2 hearted's picture

reflection of bet on euro break up

 

if euro goes dodo, german mark will soar

Thu, 10/09/2014 - 10:07 | 5308318 LULZBank
LULZBank's picture

Bond, Sovereign Bond. 0.00%

Thu, 10/09/2014 - 10:08 | 5308331 LawsofPhysics
LawsofPhysics's picture

Mr. Bond, it appears that people have lost faith in your performance...

interesting times indeed...

Thu, 10/09/2014 - 10:22 | 5308398 LULZBank
LULZBank's picture

Actually, we are so good that folks want to give us their money for free!

Thu, 10/09/2014 - 10:28 | 5308431 LawsofPhysics
LawsofPhysics's picture

No, the sad thing is, compared to germany, you have lots of room for improvement.  Call us back when people give you their money for a fee...

Thu, 10/09/2014 - 10:34 | 5308482 negative rates
negative rates's picture

It's called there is a sucker born every minute, and there are unforeseen consequences in taking advantage of the truely uneducated.

Thu, 10/09/2014 - 10:44 | 5308546 LULZBank
LULZBank's picture

The thing to note would be, who invests in Sovereign bonds and then deduce the effects on the economy/financial system from there.

Doubt the average Joe even knows about bonds.

Thu, 10/09/2014 - 10:10 | 5308342 Raoul_Luke
Raoul_Luke's picture

Haha!  Yes, we're "now" the world's CB.  As if we weren't already...

Thu, 10/09/2014 - 10:14 | 5308355 Dr. Engali
Dr. Engali's picture

Open letter to the Tyler's (If there are any left):

 

 

 

 

I have been a member of this site for a little over four years and a reader for five. Over the years I have watched a lot of good commentators disappear either by slipping off into the night or forced out because they have rubbed one of the Tylers the wrong way. Sadly I have watched a site that had some of the best articles and commentary on the web devolve into a series of sub-standard click bait articles and an echo chamber of comments devoid of any debate. In the beginning this site was intended to be a no holds barred bare knuckled fight club, but it appears that the founder/founders (if there are any left) has a thin skin and any criticism gets a person escorted to the front porch. Many of us have stuck around with the hopes that things would get better, but we all know how that hope thing works out.  

The way I see it is that ZeroHedge can continue it's slide towards mediocrity and stop catering to the lowest common denominator or the Hedge can continue with it's original mission and shine the light on corruption with some of the best investigative and financial reporting the Hedge was formerly known for. Knowing how human nature works my guess is this letter will be ignored by any remaining Tylers and I too will find my way to the front porch.

 

 

His name was Fonzannoon. 

Thu, 10/09/2014 - 10:18 | 5308375 LULZBank
LULZBank's picture

Things change, once you go commercial.

Thu, 10/09/2014 - 10:21 | 5308390 Dr. Engali
Dr. Engali's picture

I believe "sell out"are the words you are looking for.

Thu, 10/09/2014 - 10:22 | 5308403 LetThemEatRand
LetThemEatRand's picture

Pillow fight club.

Thu, 10/09/2014 - 10:38 | 5308508 LULZBank
LULZBank's picture

Early Hours Hand Bag fight club would have been atleast funny.

Thu, 10/09/2014 - 11:16 | 5308729 rocker
rocker's picture

They do fight back at the system at times. The worry is will they pander the status quo and throw soft darts to make a read or go after the unkown better stories some will never tell.

That's the Zero Hedge I love and read. It was great how they hit Cramer with GTAT. He was a No Show for two nights. Now thats journalism at it's best. Cramer did a pretaped show on theme of: anger management. Some call it redirection. He must have been told to redirect the focus off him and on wall street manipulators. It was funny to watch his bullshit. 

Thu, 10/09/2014 - 11:26 | 5308776 LULZBank
LULZBank's picture

Have you ever seen the amount of looting, plunder and blood that goes into maintaining the USD dominance in any of the charts, graphs or analysis about the USD strength.

Or how the USD was imposed as a global reserve currency?

Its all bullshit. All the analysis is superficial based on pre-agreed rules of the game, which are kinda falling apart now and hence all the distortions in the analysis and the new normal and bad news is good news etc.

Thu, 10/09/2014 - 10:49 | 5308569 ShorTed
ShorTed's picture

pillow Bite club

Fri, 10/17/2014 - 02:36 | 5345357 indio007
indio007's picture

place is full of homer-sexuals

Thu, 10/16/2014 - 23:19 | 5345064 mc225
mc225's picture

LOL

Thu, 10/09/2014 - 10:29 | 5308451 Bell's 2 hearted
Bell's 2 hearted's picture

gone? really?

 

wasn't he just yesterday?  banned?

 

i barely lurked here till signing up recently.  Can't say i'm too impressed.  But it is free so foolish to expect otherwise.

 

fwiw, i was a resident of another blog for 7 years before (finally) throwing in the towel.  It will be much sooner here for me.

 Just sticking around till the meltdown  

won't be long

Thu, 10/09/2014 - 10:37 | 5308494 NotApplicable
NotApplicable's picture

Well, he posted three hours ago. Anybody got the story to share?

http://www.zerohedge.com/news/2014-10-09/clueless-reaccomodating-fed-spu...

Thu, 10/09/2014 - 10:38 | 5308504 Dr. Engali
Dr. Engali's picture

I posted it on the Ebola thread.

Thu, 10/09/2014 - 10:51 | 5308577 NotApplicable
NotApplicable's picture

Thanks, Doc. Here's the link for anyone else interested.

http://www.zerohedge.com/news/2014-10-09/ebola-pandemic-hits-germany-tur...

The Tylers' have seemed to have gotten really sensitive since the Swiss gov. cracked down on them for spreading racism and they implemented the "Racial Discrimination Policy." Now it appears to have gone full retard, as they're left sucking the government's dick in order to survive yet another day.

Ban me if you want, as I could not care less. All it means is that the reduced honeypot effect lessens the value of ZH for the NSA et al.

 

Thu, 10/09/2014 - 11:39 | 5308828 taraxias
taraxias's picture

This site hasn't been the same for a long time. The content has changed and the best posters have either left or have been banned.

 

I have been here from the beginning but it's time for me to also say.......fuck you new Tylers whoever you may now be. The original fight club has been sold to the highest bidder.

Thu, 10/09/2014 - 10:39 | 5308521 Unknown Poster
Unknown Poster's picture

That's a real fart in the face.

Thu, 10/09/2014 - 11:10 | 5308704 Illegitimi-Non-...
Illegitimi-Non-Carborundum's picture

Dr. Engali I think you are on the right track but you are not quite getting the whole picture. Zerohedge originally functioned much like the insider networks that are so often maligned here. Back in the 2006-2008 time period when everyone was panicking this site provided an anonymous forum for posting information and enagaging in debates that if done more overtly would have been impossible to conduct. I lot of proprietaary (behind the pay wall) information used to be posted and I suspect some very high level individuals where behind the avatars that were commenting. As time progressed and things began to normalize the utility of sharing that information anonymously deminished and people stopped contributing.  I still enjoy many of the current articles but very rarely are they equivalent to the original contant this site used to provide. One small sign of this change was when the math captcha question for posting went away.

Thu, 10/09/2014 - 10:16 | 5308360 Bill of Rights
Bill of Rights's picture

IMF Survey : Policymakers Should Encourage Economic Risk Taking, Keep Financial Excess Under Control

 

ECB should be willing to do more if inflation drifts down

ECB’s recent measures are ‘welcome’

BOJ should ease swiftly if inflation gains reverse

Fed, BOE exit plans appropriate given recoveries

General mood has ‘weakened, worsened’

Thu, 10/09/2014 - 10:21 | 5308396 Bell's 2 hearted
Bell's 2 hearted's picture

"Again I have no idea what he is talking about except that there are a set of dominos out there and when they start falling the whole lot could come tumbling down."

 

the old saw of when a bear chasing you ... only have to run faster than the slower person ... Treasuries will sprint past corporates

Thu, 10/09/2014 - 10:23 | 5308408 Bill of Rights
Bill of Rights's picture

Fitch: Ukraine's capital two steps away from default
http://rt.com/business/194136-fitch-downgrades-kiev-rating/

Do NOT follow this link or you will be banned from the site!