VIX Pops As Equity Rally Stops (For Now)
A relatively quiet day after the excitement of the last few as T+3 settlement day into Quarter-end bought little action until the last hour or so. Two main themes appeared for the whole day - VIX pushed higher all day - notably more than the equity move would suggest (which is interesting given our comments on the capitulative normalization of the short-end volatility term structure yesterday) though some looked like catch up to yesterday's blow-off, and Treasuries rallied consistently all day long (with the short-end notably outperforming - as 5Y also down through its 200DMA and saw its largest percentage drop in yield in 2 months). Stocks leaked lower from an early morning spike on German Ifo (stuck in a very narrow range for much of the US day session), FX markets were dull with JPY stable at its lows while the USD rallied very modestly (dragging FX carry off a little and not supporting risk), Oil wavered around with the USD once again (ending up a little) as metal traded lower with a bigger gap down into the last hour or so. Stocks remain notably rich to credit which underperformed once again today. The last hour saw financials and Discretionary stocks start to rollover and then Tech (mainly the majors as GOOG showed the biggest drop top-to-bottom but most did not close strong - though AAPL made new highs once again). Certainly did not seem like a confirming move today of the 35pt rally off Friday's lows as perhaps Quarter-End sees some chips coming off the table - though hard to read too much into today's action.
Credit remains far less impressed with the rally than stocks and the late-day sell-of in ES seemed to want to pull it closer to reality...
The USD and Oil are practically unchanged from the initial post-Bernanke-speech spike yesterday, stocks have leaked back to approximately that level (as has Gold) but Treasuries are notably lower in yield from that 8amET 'event'...
Treasuries have bull-steepened notably this week with the short-end (5s and 7s) now 7bps lower in yield while 30Y is barely 1bps lower in yield. All are better and notably lower than the spike highs yesterday morning. 10Y crossed back under its 200DMA (on yield) for the first time since 3/14 and today was the largest percentage drop in yield in 2 weeks. 5Y also crossed down through its 200DMA and saw its largest percentage drop in yield in 2 months. In fact, all tenors are now back below their 200DMA.
And VIX increased notably today - after being generally in sync yesterday (black rectangle below), VIX (and implied correlation) surged today - considerably more than equity's move would suggest as it reached back over 15.5% up almost 1 vol today). Whether this is short-term hedging through quarter-end is unclear but it was something notable on an otherwise quiet day...
Finally, some CONTEXT for today's move. Bradly speaking risk assets (as proxied by CONTEXT - right hand side) stayed in sync but the final push lower by stocks was not followed through (yet) by risk in general (perhaps just some small give-backs in TSYs into the close). SPY, the S&P ETF, generally performed better than the rest of the HYG-VXX-TLT capital structure would have suggested until the close when SPY collapsed to close the gap. HYG sold off to its VWAP, VXX ramped all day with VIX (now that TVIX is more normalized perhaps some technical pressure on the vol complex is lifted), and TLT pushed up to 2-week highs quite consistently.
Its perhaps worth noting that today saw very low average trade size in S&P futures and one of the lowest volumes of the year - even as NYSE volume was average. The fact that ES was unable to get above VWAP all day long and each time it got close, volume came in and sold it back off rapidly suggests some institutional selling overall - but whether this was quarter-end or ongoing is tough to tell.
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