VIX, Credit, And Treasuries Warn As Stocks Yawn

Tyler Durden's picture

Equities traded in a very narrow range (aside from an early day-session stop-run) amid extremely low volume in equity cash and futures markets and ended the day modestly lower (holding the post-Draghi gains). However, a funny thing happened on the way to the equity bull market; HY and IG credit have underperformed since mid-day Friday, VIX (+1.3vols to 18.03%) has risen notably since the open on Friday - completely shrugging off equity's strength, and while Treasuries saw a great deal of ugliness at the end of last week - and a pull back would be expected - they notably outperformed (relatively speaking) their equity cousins today. The USD gained 0.25% today as the EUR dropped a notable 0.5% but only WTI reacted to that (by dropping 0.67% today) while Copper and Gold trod water and Silver spurted to a high-beta 1.7% gain (crossing back above its 50DMA for the first time since mid-March). As Unilever and Texas Industries issue debt at record-low coupons we also note that IG/HY advance-declines lines are extremely high and along with implied-skewness in SPY options suggests a very high level of complacency.


Equity futures meandered between overnight lows and their VWAP/unchanged levels all afternoon after an early rip to flush out stops above Friday's highs...


VIX (+1.3 vols to 18.03%), after being the sell-front-month-premium-until-someone-rips-your-arms-off risk driver of last resort recently, has disobediently diverged in a rather more worrisome way recently...A lot of this is macro hedging as implied correlation is rising (index vol rising faster than single-name vols) and we are also seeing some volatility term structure flattening but that is mainly driven by the front-end bear-flattening NOT long-end bull flattening...


and Treasuries were sending a 'weaker' message than other asset classes today also...


with only Silver really reacting today...


Credit markets have lagged in the last few days and ended today weaker than Friday's close (despite a late day illiquid push up effort in HYG)...

On a day when Unilever (5Y) and Texas Instruments (3Y) broke all-time record low coupons for corporate bond issuance, we look at cash credit markets.

Cash corporate bond markets have remained resilient in the face of some weakness recently as flows dominate but the advance-decline lines for both IG and HY credit is now at extreme buying levels suggesting some of that exuberance may be due to fade (especially when we consider just how low dealer inventory has been forced to become - which will mean far less liquidity when anyone sells - if that is ever allowed)...


Charts: Bloomberg


Bonus Chart: The Skew that is implied in the prices of SPY options (in other words, how much do we need to shift the downside tail of a normal distribution to fit with the market's pricing - which is different from the simple skew in pricing) is back up to relatively epic complacency levels...










Bonus Bonus Chart: Oil priced in Silver (given today's 'spurt' in Silver, we got thinking about this relationship again). Seems like since the November Central Bank interventions, Oil priced in Silver has had a rather cyclical channel to trade in and maybe today's shift was more reflective of a normalization in that relationship ahead of 'events' this week...

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HungrySeagull's picture

Gravity is a wonderful thing.

Sorts out who have and those who owe.

adr's picture

A little off topic -

Did you hear that has links to prove that Obama is related to the first slave in the colonies!!!

Let's see what other bullshit the fakest site on the internet can find before the election. My bet is Ancestry finds Romney is related to Genghis Khan, and Ron Paul is related to Joe Stalin.

Ahh haa haha hah

A family history website claims it has linked President Barack Obama to the first documented African slave in the American colonies.

Research derived by from early Virginia records and DNA analysis shows Obama is the 11th great-grandson of John Punch, an indentured servant in Colonial Virginia who became enslaved for life after trying to escape in 1640, according to the website.

Really, Ancenstry is digging up bodies and doing DNA tests now.

Soon Ancestry will claim Obama descended from Jesus, making Obama truly the new messiah.

Fuck you Ancestry you .com social media trash site.



sabra1's picture

i always knew oBLAHma was related to a colon!

Frank N. Beans's picture

"...IG/HY advance-declines lines are extremely high and along with implied-skewness in SPY options suggests a very high level of complacency."

that's what I thought too

slewie the pi-rat's picture

that bonus chart doesn't have the dates placed right does it?  that 'data' may only be for feb 2012

slewie can't read the chart with that lay-out

but i'm too complacent to care

peak complacency BiCheZ!

PhilB's picture

I guess things are really slow today. Trying to make sense of daily correlations in low volume days is about as useful as watching paint dry. The VIX and SP Skew analysis is junk.

credittrader's picture

Appreciate the sentiment and indeed on a quiet day judging anything is questionable at best. Even though, fascinated why you think the SP Skew analysis is junk. Just to be clear this is a long run smoothed view of Bloomberg's short-term V-G model skew calibration - seems to have been quite interesting in the past. Also, the dislocation between S&P 500 and short-term vol is interesting in light of the recent steepening in the vol TS (especially considering the index vol is outperforming the single-name vol) - seems like macro overlays are being laid out rather than buying into this rally.

PhilB's picture

Thanks for asking. Volatility is something people seem to report a lot on but dont really understand it and make mistakes in interpreting the movements. Here is a perfect example.

Let me give you my perspective (i have a lot of experience in this area)

When implied vol on the short end collapses in lull weeks/months its because it must track historical volatilities when there is no better estimator of future vol (particularly true in short end volatilities). Traders and clients dump vol in this month cause owning Gamma is expensive if short term historical vol is collapsing. This increases supply of options to mkt, so implied vol collapses too.

Now in this low vol period one would expect the skew intensity to be there because no one wants to sell downside risk too cheaply and upside potential seems limited or favored strikes to sell (people tend to write calls atm or OTM).

When an event risk (like a strong policy action), options become in demand again and implied vol rises. People forget though, that this can come from a potential bullish case and is not always bearish. So VIX move higher can just mean people are buying options. Now whcih ones? 

If the change is to the upside risk potential, the OTM calls rise in implied vol.  People start buying OTM calls, either covering shorts or adding longs at low implied vol levels. So the skew then flattens, but its not because of any decreased downside risk perception (OTM put vols can remain the same), but just that jump risks are becoming more aligned to up and down moves. So its not bearish, in fact it can even be bullish.

credittrader's picture

thank you for the excellent clarification - and agreed on vol misunderstanding (as has been noted here many times) - drives me crazy. FYI - we talked about realized vol premia being low recently (I think this was most recent). Once again, appreciate your view.

IMA5U's picture

Real $ cash in credit did nothing today


But it's good to stir the pot with the synthetic products

q99x2's picture

Nice color choices today.

Escpecially liked that red and blue one. Like anatomical dude.

CunnyFunt's picture

Can any of you "finance peoples" explain to my why silver spiked today while gold was relatively flat? Usually they work in tandem. What was more surprising to me was silver's gains over a rise in the DXY. Come on, genie asses, tell this dump fack why!

chump666's picture

anticipation of DXY selling, silver is cheaper hence it being hedged more so than gold.  equities are readying for official QE3, so you'll see gold spike and USD sell.  But...if you get QE lite, which is likely, markets will sell, USD will be bid, silver will sell and gold, also oil.  We have had a sharp rally knocking out June and July highs, market now looks overbought near term, in saying that, Asia is the proxy on USD buys and they aint buying so we may still get a rally close to the May top.  If I was running with the equity bulls all the way with the Fed, I would be nervous as the market is skeptical (as ZH notes) on further money printing which will send more inflation  throughout parts of Asia, namely India and China, oil spikes over 90, USD bids will knock it down. 



CunnyFunt's picture

Thanks amigo. Right, I figured all that. But why today just silver?

chump666's picture

looks like a crowded trade, someone or some hedge fund are looking for that parabolic spike, they will probably get it on May highs

...then sell.


HungrySeagull's picture

It is easier to buy and own American Silver Eagles.

Gold, not so much. The money that comes through the "Exchanges" aka Checkout line is recorded in near real time. If.. for example Mr big Bawls reached deep and bought say... 100,000 dollars worth of gold delivered to his home


The entire Gold market will "Feel it" on that purchase. Maybe a little bump up.

However, people have drawn crayon the words "Gold" on notebook paper and sold it as shares to Retail. These last few weeks, there has been a drop in desire to own imaginary gold.

It balances out, savvy?


You will want to consider Silver a little bit of a ... ticking time bomb. Pull up Kitco or some other chart on Silver and go back to last March. The fun began around April 16 if I recall correctly and lasted to just about... July?

I got out at near the top just prior to the drop. At the time I was afraid that the 48 dollar price would become a 500 dollar monster or anything north of 60.

CME hiked fees on silver several times that week to discourage people from buying.

There are very powerful people in charge of forces intent on keeping the little shit... uh, little people from buying a truck load of silver and cashing in to pay off debt.


With that in mind, I own 60+ silver. It is pitiful, however between bills and what have you it's the best I can and have done. Remember the price of silver stayed down from August of last year until about Feburary of this year.

Repeat after me.

"I don't care what the price is as long I own it and hold it in my hands."


That way when the Media broadcasts everywhere just how bad Gold got hammered or how fucked up the silver is on the falling prices... DONT PAY ATTENTION.


Prices drop... BUY.

Prices up... be very careful.


No. Matter. What. DO. NOT. SELL. Why?

Back in the 80's a pair of very ballsy people wanted to buy every silver ounce then in Existance on the entire corner the market.

At the time silver was what? 5 bucks? It went to 50. The equivilant of 250-400 today depending on who you talk to. 1980 to 2012 is a very long time.

No one wants to see silver at 250-400 or whatever. Except you, me and that buyer  Stacker over there.


I have tried to talk to you directly using simple words, my understanding is extremely limited. I know these three things.


1- Buy low, remember that price and sell high.

2-- Very bad people wish to see gold and silver OUT of Blowhard Joe's home.

3--- A dollar, dime or whatever changes in daily price matters not.


What matters is you need to develop a mindset that silver is necessary. And then budget and buy what you can. I keep an empty monster box in the closet (25 silver tubes that all together will hold 500) as a reminder of my goal to accumulate 500 silver.

It's just that a goal. Will I ever see it? Probably not. We don't know.


Develop a goal, a plan and stick to it.




Yea I know that I have blabbed all over ZH. For a very long time since a certain Bearing Maker helped me see the light... no, the shine... yes the shine.


My neighbors don't know that there is silver in these hills. And it will stay that way.


There is two last thoughts I leave you with.


1- Pawn shops buying gold has sprouted like weeds everywhere.

2- If My neighbors who dont have a clue suddenly woke up as I did last year and wanted silver right now and pull out the credit cards to make it happen....

This silver market is going to feel it and it will be awesome.


And last, if there is a bad day for this nation... and the US dollar is worthless...


That gold and silver in your home will be repriced in the new currency and thus you have managed to become a Lord while so many others have seen everything go up in smoke.

Suppose there were 300 million silver stackers in the USA?

CunnyFunt's picture

I know, bro. But without the cut-and-paste, WTF happened today?

luna_man's picture



I know, I know...few here give a rats ass about charts and indicators, BUT...did you notice that "evening star" today?...Go ahead, pull up the daily of "s&p" and dj-30.


Not that it means a doggone thing, the way this market is controlled.

my two cents