Volume Explosion Sends ES Higher As Treasuries End Unchanged

30Y Treasuries rallied 14bps from high to low yield today peaking at the US equity day session open and troughing just prior to the late day vertical ramp-fest in ES (the extremely liquid e-mini S&P 500 futures contract) that managed to turn what was heading to be a mediocre day into a headline-grabbing risk-fest. Unfortunately, stocks were the only asset class enjoying this exuberance as Oil lost over 2.5% from its highs, AUDJPY and FX in general drifted lower all day and copper and silver slid after Europe's close. The huge burst in volume which ripped us back to VWAP in ES and several of the financials (as BAC was heading towards a $4 handle) was very notable and dragged ES back away from a critically risk-off performance day in CONTEXT.

The TSY curve ended practically unchanged with the short-end modestly lower in yield and the long-end very modestly higher in yield. The very notable rally and compression in 2s10s30s from the start of the US day session was a major driver (along with the general risk-off sentikent of the TSY rally for today's CONTEXT move).

ES and CONTEXT (dark blue line above) converged all day - from the 13+ point differential when we posted earlier - to as narrows as 7pts in the final hour. ES moved in our direction by 10pts or so only to give most of it back with the last minute volume spike. Risk, broadly speaking, was off all day - and even as we pointed out in the sectoral and financials performance, was lagging badly from only 1 minute after the open.

Credit underperformed equity's close to close shift massivley by completely ignoring the late-day ramp. HYG, for a change, tracked equities very closely, and held pace with equities late day surge with its own high volume ramp up to VWAP (light blue line above).

In corporate bonds, we saw net selling all day long with financials by far the most net sold (29% more buy-side sellers than buy-side buyers). HY secondary bonds were net sold - despite very strong perrformance in HY credit indices - which tracked ES most of the day. Evidently, duration risk seemed to be removed in general in both TSYs and Corps today.

All-in-all a very odd day that will make for some very sanguine headlines but from a professional's perspective, the underperformance all day along with the lack of any follow-through from any other asset-class into equity's last minute surge is worrying. Very heavy volume spikes in financial stocks along with significant net selling by bond managers is worrisome but a +3% day for ES is touigh to argue with when the margin-man comes calling. 1160 remains our HY-based relative-value view of fair S&P cash currently and with the relative outperformance of VIX and implied correlation today, it certainly didn't feel like professionals were re-risking today.

Charts: Bloomberg

UPDATE: By request - updates to our earlier sector post charts:

Sector's performance post 0931ET - nothing odd here at all into the close.

...and the 2% ramp in the majors made perfect sense.


No comments yet! Be the first to add yours.