Risk-Off As Buiter Reminds World About Europe

Tyler Durden's picture

The EURUSD, Treasuries, and European sovereign spreads had been leaking in a risk-off direction from around 530amET this morning but European risk assets (followed quickly by US) accelerated shortly after comments by Citi's Willem Buiter, in a scathing Bloomberg Radio interview that pulled no punches with regard to US and European fiscal and monetary policy, noted Spain is 'at greater risk than ever before' of debt restructuring. The EUR reacted quickly and started to drop - now lower on the day - and sovereign spreads (which had been leaking gently wider) accelerated. "Spain is the key country about which I'm most worried", Buiter added, "and it has moved to the wrong wide of the spectrum". Simultaneously the DAX dropped (after stabilizing at slightly positive levels from a higher open) shifting into the red, US Treasuries went bid with the 10Y yields dropping almost 5bps from its overnight highs, and US equity futures fell 4pts back to unch. European corporate credit is still digesting the technicals of the roll and is less reactive so far though broadly speaking equities are underperforming.

EURUSD had been leaking since early this morning...


The DAX held up until Buiter's comments, then dropped into the red...

And European Sovereigns accelerated wider...

US Treasuries are somewhat reversing the recent trend with a decent downtick in yields on this move out of Europe...


Charts: Bloomberg

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HD's picture

They called Rick a liar on air. "Stop making stuff up".  CNBC does not like its propaganda challenged...

 Apparently. the talking heads believe their own hopium bullshit.

streetcrawler's picture

I made the mistake of listening to CNBC radio this morning. Kramer said U.S. banks were "strong" and that our government is actually anti-bank and those morons in Europe are are on the take from their banks.

GetZeeGold's picture



I think the full tilt recovery should be obvious for everyone to see.


When you get to grade yourself the results can be fairly predictable.


Madrid2020's picture

CNBC=WH Communications Office ! I love the smell of Hopium in the morning.  

dontgoforit's picture

Does it take a prophet to see?  All of this for the last 2 years is building up to a great depression.  Or is just me?

Awakened Sheeple's picture

This isn't the insolvent sovereign you're looking for..

sablya's picture

Risk on, Risk off, lather, rinse, repeat....why does the VIX continue to languish?  

resurger's picture

The cocksuckers are attacking all the hedging instruments, all of them!!!!

resurger's picture

(Reuters) - In the past 12 months, investors worried about big market shocks have been rushing into esoteric products they think will cushion their portfolios against wild gyrations. The only problem: In doing so they have often massively raised their investment risk.

The money is being invested in exchange-traded funds and notes that bet on or hedge against volatility - once the almost exclusive trading domain of professional traders, such as hedge funds, but now attracting interest from less-sophisticated investors.

Most investors use these products for short-term trading, but some are holding them to hedge against the impact of a major event that could send oil prices soaring, such as the possibility of an Israeli attack on Iran's nuclear facilities.

Yet socking these products away in a portfolio for more than a few days can quickly become a money loser because they are not intended for buy-and-hold investors.

"Some people trade this like it's an IBM stock. People don't really know what this is. They don't know what they are buying into," said Dominic Salvino, options specialist at Group 1 Trading.

At the center of the issue is an index known as the VIX, the CBOE Volatility Index, which tracks expected volatility of the benchmark S&P 500 stock index.

In times of crisis, such as Standard & Poor's downgrade of the U.S. government's credit rating last August, the VIX shoots up to reflect uncertainty in the market - and the ETFs linked to it are designed to follow.

But with the 12 percent rally in stocks so far in 2012, volatility has been falling, and the ETFs have taken a horrendous beating.

One exchange-traded fund that has been growing in popularity, the ProShares Ultra VIX Short-Term Futures ETF, is down a whopping 89 percent since its debut last September. Yet, it still traded record volume of nearly 5 million shares on Tuesday.

The interest is coming partly from investors and traders who are owning the ETFs because they do not believe the calm will last.


Fund companies and other product providers say they are telling investors these securities are not designed for long-term holding and that view is also stated in prospectuses.

But the situation is again raising questions about the role of ETFs in the market. It is reminiscent of issues that have plagued leveraged and inverse ETFs, which regulators clamped down on over fears that advisers were selling these products to investors who do not understand they are day-trading instruments.

ETFs are frequently pitched as transparent, easy to trade and consumer-friendly. They have recently become the rage with assets nearly doubling in the past three years to $1.1 trillion in January.

The 14 exchange-traded products linked to the VIX have about $3 billion in assets, according to San Francisco-based ETF industry tracker Index Universe.

That is still a small amount when compared with mutual funds, which manage about $10 trillion in assets. However, the trading is affecting prices in certain futures markets, which is also a problem for some investors.

The exchange-traded funds and exchange-traded notes invest heavily in VIX futures.


What those holding the product for an extended period of time may not realize is that over time they lose value because in the VIX futures market, further-dated contracts are generally more expensive than the front-month VIX contract.

The VIX lost 18 percent in 2010. The iPath S&P 500 VIX Short-Term Futures exchange-traded note, which tracks short-term VIX futures contracts, was down 72 percent that year.

Some financial advisers are parking money in these products for weeks at a time "thinking any day the world is going to end," said an official at a firm that provides volatility-based exchange-traded products. "But then the world doesn't end and they own the product for a little longer."

While a short-term bet on volatility can pay off if markets get hit hard in a span of a few hours, long-term bets are losing money because the indexes "roll" these products on a daily basis - that is, they buy more later-dated contracts and sell the nearer-term ones.

"The best way to get what you want out of these products is to take a more active approach," said Tim Edwards, head of ETN product development at Barclays Capital. "But we do understand that not all clients want to manage a daily reallocation."

The skyrocketing trading volumes recently pushed Credit Suisse, which offers the VelocityShares Daily 2x VIX Short-Term exchange-traded note, to stop issuing shares out of concern it would have an undue influence on the small but growing market in VIX futures.

The halt in share issuance in the TVIX was a topic of concern when volatility traders, including hedge funds, met at a conference in Manhattan earlier this month. The traders cautioned that the popularity of the fund was only matched by its high risk.

TVIX trading has declined, and other products have filled the void. The iPath S&P 500 VIX Short-Term Futures exchange-traded note is now one of the most heavily traded issues in U.S. markets, with an average of 35.5 million shares traded daily over the past 20 days. By comparison, Citigroup Inc daily volume was about 43.4 million shares over the same period.

Although the exchange-traded products linked to the VIX have only around $3 billion in assets, the value of their liabilities averaged about 75 percent of the value of their indexed VIX futures contracts for all of February, according to Index Universe.

For example, on February 24, there was $2 billion in open interest in March VIX futures contracts, but the exchange-traded products' value of exposure to these contracts was $1.54 billion, according to Index Universe.

There is concern that futures traders are buying VIX future ahead of anticipated demand from exchange-traded products. But others said it was impossible to attribute the moves to gamesmanship.

Barclays Capital, in a recent research note, noted that the hedging of VIX exchange-traded products is not limited to VIX futures - they can also go into the S&P options market.

"People are paying a premium to have exposure to the VIX and those that take the risk on the other side, essentially capitalize on that arbitrage opportunity," said Henry Chien, analyst at TABB Group. "Everyone wants to trade volatility."

(Reporting By Jessica Toonkel; additional reporting by Doris Frankel in Chicago and Carrick Mollenkamp and Angela Moon in New York; editing by David Gaffen and Martin Howell; desked by G Crosse)

Village Smithy's picture

Absolutely, anything you could use to hedge and especially short is under attack. If someone mentions anykind of bearish divergence appearing it seems to magically converge over the next couple of days. It really is unbelieveable.

SheepDog-One's picture

Not everything is under attack, buy supplies.

Awakened Sheeple's picture

Why should the VIX be higher? Everything's going to be okay. The banksters told me so.

resurger's picture

Let the mother fuckers suppress volatility as much as they want.... once AAPL announces that it's sales are down by 1% see the bounce back!

am closed on all my shorts, i want to see where this bullshit is going to go!

wait for AAPL blackswan event then sell  1,000 shares of AAPL every 15 minutes..


He_Who Carried The Sun's picture

quote: Risk on, Risk off, lather, rinse, repeat....why does the VIX continue to languish?


...because "risk-on" vs. "risk-off" is a very braindead approach to what will be the year of the stockmarket, whether PM-loving ideologists like the fact or not does not matter.... ;-)

kalasend's picture

VIX only tells you about people's risk assessment WITHIN THE NEXT 30 DAYS.

VXV tells you similar view, but on the coming 3-6 months.

If you can plot their ratio (i.e VIX/VXV) the chart would tell you that people(market?) is at an unprecedented level in terms of worrying about a quarter out. (said ratio at about 0.75 is extreme outlier, to put mildly)

Stoploss's picture

De new pain comes mainly from Spain.

lolmao500's picture

Stupid investors buying crappy bankrupted US bonds.

fonzannoon's picture

We need a nice "Spain is Lehman x10" wall of worry to climb on our way to dow 20k

SheepDog-One's picture

After Greece, I'll just laugh at the next 'terrible looming problem' they bring up next because it will just be another 'central bank rescue operation' where the bankers are totaly safe and the people get kornholed....its coming here next you know. 

Quintus's picture

What sort of 'Markets' do we have when they have to be reminded of VERY important things every 5 minutes or they simply forget and return to vacant-eyed complacency?  

Everyone just forgot about the massively insolvent continent across the sea until Buiter brought the subject up?

At what point will the insolvency of the US be brought to mind again triggering a panic out of the stock of gadget manufacturers?

Al Huxley's picture

If I could up-vote more than once, I would.  My thoughts, exactly - how the hell does everybody just suddenly forget about all the looming debt crises? 

SheepDog-One's picture

Yea, markets are SO predisposed to 100% euphoria we were just partying down and forgot all about the fact that we're all totaly bankrupt with no way out...OK enough doom and gloom talk for today cant we get this full-retard party started again??

LongSoupLine's picture

Dark Pools to the rescue!!

Santelli was great this morning when fueled and sparked by not only LIESman, but upcoming fucktard Scott Wapner.  Totally schooled them...again.

HD's picture

Liesman is dead wrong - but at least understands how markets work. Wapner is just a useful idiot.

SheepDog-One's picture

'How markets work' yea starts with media spin, then behind the curtain where any market drop is quickly reversed. 

SheepDog-One's picture

Like a bunch of morons with a 10 second attention span.

Mr_Wonderful's picture

Interesting strategy by Apple. Ipads to double as food warmers ?





Dick Darlington's picture

Mind the coming margin calls by ECB when things start to deteriorate!