Following a brief dip in the overnight session, yesterday's momentum transitioning out of stocks and into bonds has continued, with futures now at overnight highs 2.5 pts above closing. As Bloomberg's cross asset dashboard and analyst TJ Marta write, most stocks and bond yields are higher on the Fed’s upgraded economic outlook, ebbing of EU debt concerns vs Chinese equities, AUD, NZD, commodities lower after China warned of need for continued policy restraint. The VIX has again tumbled to fresh mutli-year lows, touching on 14.80, at this rate threatening to enter the single digits and wreak havoc with swaption trader models. Bad or negative news is now roundly ignored, such as the just released 5th consecutive drop in the MBA mortgage applications index, which slid 2.4%, following a 1.2% drop: what was that about a housing bottom again? Also ignored was the miss in the January European Industrial Production which rose 0.2% on expectations of a 0.5% increase, following a -1.1% drop in December. Finally Spanish bank borrowings soared to €152.4 billion in February, from €133.2 billion, even as the second LTRO hit. In other words - of course risk will be back: every single Eurobank balance sheet is now flooded exclusively with taxpayer money. Who cares if that is gambled and lost: more will simply be issued (in exchange for even more worthless collateral) just as the ECB intended. As for the primary driver of risk on-ness, rotation out of bonds - best of luck with that as the US has to find buyers for $1 trillion in bonds in the next 9 months, especially as the Fed is running out of 2 Year bonds to swap for 30 Year pieces of paper, and as Twist expires (never mind the $2.0 billion DV01 on the Fed's balance sheet).
Some more from Bloomberg:
- Fed’s upgraded economic outlook boosted sentiment in many markets
- Most Asian equity indexes moderately to significantly higher; EU indexes modestly to moderately higher, weighed by disappointing Euro Zone production data; U.S. futures post small gains
- Bund yields significantly higher Treasury yields higher, significantly so at long end, with 2012 ranges broken
- EU sovereign yield spreads to Bunds mostly modestly tighter
- EUR/CHF +0.4%, 3.1 std. devs., with cross rebounding towards top of 2-month range
- EUR/CHF +0.4%, 3.1 std. devs., with cross rebounding towards top of 2-month range
- Chinese Premier Wen said curbs on property market must remain because prices remain far from reasonable levels