It is not a good time for Janet Yellen. The one time Bernanke-replacement favorite who many were confident would be the next Fed chair, and whose odds in the initial stages of the Fed race were 75%, is so far out of the running one can almost ignore her candidacy. At least if the market makers behind Paddy Power [7], and the Fed Chair market betting participants have it right. As of today, her odds have slumped to the lowest in the life of the contract, or 29.4%, below the 36.4% from mid August. The leader by an even greater margin: Larry Summers whose 2/5 odds, or 70%, mean that absent a material change in rhetoric, will be the person Obama announces as Fed chairman replacement over the next month.
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Has the market priced in a Summers' reign? If CS' Harley Bassman is correct, not even close:
"Taper" induced volatility will be a fond memory for investors if Mr. Summers is selected as the nominee (whose record as a consensus builder speaks for itself).
The bottom line from a Convexity stand point is that a Summer's FED could take us in a different direction from a Yellen FED (that would almost certainly be a continuation of the Bernenke FED).
So while Septaper may come and go, markets may soon be digesting the volatility induced by the Summers of their discontent.