While most of the talk will be about the drop in precious metals today, the sell-off in Treasuries is of a much larger relative magnitude and yet equities broadly ignored this re-risking 'signal'. At almost 2.5 standard deviations, today's 10Y rate jump (closing it above the 200DMA for the first time in eight months) trumps the 1.3 standard deviation drop in Gold prices - taking prices back to mid-January levels. According to our data (h/t JL) for only the 14th time in the last five years (and not seen for 16 months) Treasury yields rose significantly and stocks fell as the broad gains in yesterday's financials (on the JPM rip) were held on to at the ETF level but not for Morgan Stanley, Goldman Sachs, or Citigroup (who gave all the knee-jerk reaction back). Tech led the way as AAPL surged once again (though faltered a few times intraday) having now completed back-to-back unfilled gap-up-openings. Credit and equity were generally in sync until mid afternoon when the up-in-quality rotation took over and stocks and high-yield sold off (notably HYG - the high-yield bond ETF underperformed all day long) while investment grade credit rallied to multi-month tights. VIX bounced higher (notably more than the S&P would have implied) recovering to Monday's closing levels and back above 15%. The Treasury sell-off was 'balanced' in terms of risk-on/-off by the strength in the USD (and modest weakness in FX carry pairs as JPY's weakness was largely in sync with the rest of the majors - hinting its was a USD story). Oil and Copper both lost ground (as did Silver - the most on the day) though they tracked more in line with USD strength than the PMs.
Post the JPM News yesterday, it appears that BofA seems the most loved (?) - up almost 9%, Amex and JPM are equally loved at around +5.5% but GS, MS, and C are all down 0.25-1.0% from pre-JPM news having lost notably from last night's close...
[15]
Towards the latter part of the afternoon, there was the start of a modest risk-off sentiment as ES (the e-mini S&P future) couldn't get back up to VWAP and drifted lower along with high-yield credit as it appears the 'safety' trade is re-appearing for now as up-in-quality rotation into investment grade was clear...
[16]
The 10Y broke above key technical levels and while we are uncertain given the corporate supply calendar ahead, this was a dramatic absolute and relative shock to most traders...
The last two days have seen a rise in 10Y yields the likes of which we haven't seen in five months and the second largest in 16 months. In the last six months alone we have seen nine similar magnitude (percentage)drops in spot gold...
...but it was much more fun to talk about the huge USD-based drop in Gold today - as opposed to the relative change - but it is clear that Gold found some support back at pre-NFP levels from mid-January and Silver eventually gave way too and fell back to similar period levels...
FX markets were a one way street in general today with USD buying relatively similar across all the majors (in a mildly risk-off manner given JPY crosses)...
[17]
To put these divergences in CONTEXT [18], we can see from the lower chart that a) upper left shows the late-day recovery in HYG (and drop in VXX) that juiced relative risk model compared to the slow drop in SPY, b) the three charts on the right hand side shows the total disconnect between empirical correlation-driven risk models and today's price action as Treasuries (and 2s10s30s) dislocated, and c) lower left shows that VIX limped quietly up to what is more of a fair-value given the current levels of equities and credit.
[19]
Whatever the reason for the disconnect - QE unwinds or individual market technicals (flows) - it is unusual to see this kind of break-down which makes us think the picture is much less rosy than the S&P 1400ish headlines would suggest and the late-day rotation into IG credit also suggests less risk-appetite than the herd would like.
Charts: Bloomberg and Capital Context [18]