High Yield Plummets and VIX Flares Most In Almost 3 Months

Tyler Durden's picture

Credit (and vol) continue to lead the way as smart deriskers as ES (the e-mini S&P 500 futures contract) ends down only 0.5% - which sadly is the biggest drop since 12/28. The late day surge in ES, which was not supported by IG or HY credit (and very clearly not HYG - the HY bond ETF - which closed at its lows and saw its biggest single-day loss since Thanksgiving), saw heavier volumes and large average trade size which suggest professionals willing to cover longs or add shorts above in order to get filled. Materials stocks underperformed but the major financials had a tough day as their CDS deteriorated to one-week wides. VIX (and its many derivative ETFs) had a very bumpy ride today. VXX (the vol ETF) rose over 14% (most in 3 months) at one point before it pulled back (coming back to settle perfectly at its VWAP so not too worrisome). After the European close, FX markets largely went sideways with the USD inching higher (EUR weaker) as JPY strength reflected on FX carry pair weakness and held stocks down. Treasuries extended their gains from yesterday's peak of the week yields as 7s to 30s rallied around 6bps leaving the 30Y best performer on the week at around unchanged. Commodities generally tracked lower on USD strength with Oil the exception as WTI pushed back up to $99 into the close (ending the week +1.1% and Copper -1.1%). Gold and Silver ended the week down almost in line with USD's gains at around 0.25-0.5%. Broadly speaking risk has been off since around the European close yesterday and ES and CONTEXT have reconverged on a medium-term basis this afternoon (to around NFP-spike levels) as traders await the potential for event risk emerging from Europe.

As we warned yesterday, the significance of the divergence with credit in Europe and US was becoming palpable and the Storm that we noted was coming has begun we suspect. Stocks managed to cling to the cliff-edge that is the post NFP spike levels while credit has fallen significantly below pre-NFP levels. No follow through at all in credit on that late day surge in stocks and HYG seeing its single worst day since just before Thanksgiving (chart below).

Let's see how many investors who reached for yield stick with them when they realize that a third to a half of their annual yield just got taken away in 2 days - as we've said before, there is a reason they have a high yield.

VXX (the Vol ETF) was very volatile today as VIX (above) saw its largest jump in three months - as many know this is very typical VIX behavior, slow leak down and abrupt flare-up. We suspect the implied skewness and kurtosis discussions we had earlier in the week are being laid again after normalizing.


Treasuries roared back to life late yesterday and through today as supply ebbed and risk appetites dropped. 10Y seems the most volatile - perhaps on its mortgage hedging exposure - but 30Y outperformed on the week - ending just a little higher in yield.

The USD pulled back towards unchanged today after reaching its lows for the week just around the European close yesterday. Day after day we have seen the most volatility during the European day session with reversals into and around the closes and opens. After hours today EUR is pushing modestly higher on news that the Greek cabinet has approved loan plan but it is staying under 1.32 for now. JPY was the biggest loser on the week though stable as the USD strengthened against the other majors - this carry-pair impact dragged broad risk assets lower - though chatter is that a rotation to the EUR as a funding currency is occurring though we suspect the binary nature of the currency makes it a little too noisy for the risk-sensitive players.

To get a sense of how broad risk assets have been behaving this week we use a medium-term (as opposed to the short-term model that is used for trading and arb) CONTEXT - which as you can see is well synced with last week's pre- and post-NFP behavior. The whole week has seen a very narrow range for US equities that again and again has seen CONTEXT (broad risk asset proxy) and stocks converge around that post NFP spike level (green oval). Monday saw a broader derisking among risk assets but US equities maintained into Tuesday where Oil and Treasuries led risk-on and the faded to convergence. The sell-off and curve steepening in Treasuries along with Oil strength and FX carry all helped to push CONTEXT aggressively higher but the divergence lower in the latter part of the week reflects back to credit's underperformance dragging on stocks. Today saw Treasuries rally, curves flatten, and carry lose ground as non-equity risk assets fell back to earth and reconverged with stocks for pretty much the entire day session today in the US.

On the late-day news from Greece, Treasuries are modestly higher in yield, EUR (and carry) is modestly higher and CONTEXT is leading for now (as ES is closed) suggesting a 3-5pt bounce only. It will be along weekend.


Charts: Bloomberg and Capital Context

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navy62802's picture

... speaking of which, I have some honey ouzo from Crete. Think I'll have a shot for the Greeks.

slaughterer's picture


Correct, looks like a 3 point bounce here on this news in AH:


Greek Prime Minister Lucas Papademos secured approval from his Cabinet to submit laws for new budget measures designed to secure a second rescue package for the country, according to a government official today.

The official, who declined to be named, spoke to reporters in Athens at the end of the Cabinet meeting.


Irish66's picture

does he still have a cabinet?

slaughterer's picture

Good question, but yes he still has a cabnet.  Most of the opposition left.  

Irish66's picture

maybe martial law by Sunday, can they declare that?

Conman's picture

I dont understand, so these opposition guys resigned in protest? If you are against something why would you give up? Damn these Greeks are lazy.

Manthong's picture

They were told they can't stay if they oppose the latest austerity budget.

In the long run, probably better for them to be on the streets now.

a growing concern's picture

Somebody fucked up big time.  Good rumors while the market is open, bad news while the market is closed.  Jesus H Christ in a chicken basket, do we have to do everything for these fucktards?

Randall Cabot's picture

 Here's more on the update story:


Papademos Gets Cabinet Approval for 2nd Bailout

Feb 10, 2012 5:51 PM ET

Greek Prime Minister Lucas Papademosobtained approval from his Cabinet for deeper budget cuts needed to secure a second package of international aid, clearing the latest hurdle in his race to prevent financial collapse.

Cabinet approved the 287-page document unanimously, said a government official, who declined to be named. The approval means the 300-seat Parliament will vote, probably tomorrow, on budget measures amounting to 7 percent of gross domestic product over the next three years and a debt swap to slice 100 billion euros off more than 200 billion euros of privately-held debt.




















fonzannoon's picture

They fixed everything at the close. If the mrket closed at 4:05pm The SPY would have been green

huggy_in_london's picture

sentiment reminder/wake up to people today.  buy risk at your peril ... (as if anything has changed) ..... Everyone went from super bulls to bears in less than 48 hours.  Lets face it, whether its today or tomorrow, or next month or the month after, Greece - contrary to what all these lying, theiving politicians and 'technocrate' prime ministers tell you - will default.  Its just a question of when.  

navy62802's picture

Here we go again. Strap in and get ready for the ride ...

dcb's picture

some things should be clear about the algo's by now. the s and p should close the gap, but not hit a higher hig. each time  you buy into a short on a down leg you will almost always loose, the key is to chart the channel. and buy inot one of those inverse leveraged funds with limit orger. these gaps almost always fill. we see it often enough. drives me insane, there are no gaps down anymore so we dropped from this summer until literally the last month almost, then all the way back and higher in a month. a disaster!!!

it's frustrating to trade the way to max your trading profit is usually buy into the short on an up day, and close out the short on a down day. the last hour of the dqay appears to give a big clue as to next days action. I don't know what will happen exactly, but if it's up monday, that's why you should be buying into a short, and I sold yesterday, and bought some today. this is what I will do. it will most likely drop to lower low for a while. when you have a good chart of the channel, program your trading the night/day before.


it helps to look at the hopurly macd histogram!!!

even if I bought some short today that were programmed into the computer, I sold a little of what I had bought yesterday, when all is said an done, usually I put the stop loss on the bottom of the third day prior. almost always if you stop loss on the day prior, it triggers others to sell and then bounces up

dcb's picture

the rsi wilders often helps. very often there are a lof of games at the market top whioe the s and p fiddels around and the rest of the word drops. it's wny I prefer the emerging markkets to trade. they seem to do a lot less of this sillines where they just don't drop for a while.

Conman's picture

Lets see we lost 9 on the s&P today, must mean +18 on monday! Yup that seems to be about right lately, every selloff is followed by a rally on non-news.

slaughterer's picture

ES 1380 next week seems about right.  

Yen Cross's picture

 Hey? I'm here!  Yes I'm a Tater Tot! The VIX ( SPX) is in 20% increments. Correct me if I'm wrong.

TradingJoe's picture

Not so fast folks, next week is expiration for several options, da Greeks aren t done yet, it ll be tight but shorts should Winn this time!

AmazingLarry's picture

In and out of UVXY FTMFWz.

Reese Bobby's picture

Plummets!?  What verb are you saving for a real market break?

If you trade like you shill transaction costs will eat you alive.  But good luck anyway.