12 Years of VP vs Noise

Sharing the ideas and experiences that have influenced our work

Narrative Shift Depends on Virus

Earlier this month, the S&P and gold both collapsed on the same trading day, which is extremely rare. The top-left chart shows that in the past 20 years, the only times gold was down more than 3% while the S&P is down more than 5% was last week and back in...

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There’s Something About the Term Premium

Historically, investors have required extra yield to hold longer-term bonds instead of short-term securities to compensate them for the added uncertainty. Thus, in a “normal” world, term premium (TP) should not be persistently negative. Yet, since 2016, TP has been...

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FX Vol Still Attractive

Since news of coronavirus first spread, markets have struck a decisively risk-off tone with higher yielding currencies selling-off. Commodity currencies and Asian markets have been particularly hard hit. Despite the fresh bout of FX weakness, implied vol has been...

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Another Yield Curve Red Herring

After first inverting last year, the 3m10y yield curve recently re-inverted, prompting the usual slew of mechanical recession predictions. However, not all inversions are equal. The top-left chart shows that almost all of the YTD decline in 10y yields is from the fall...

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Hedge Tail Risks on Low FX Vol

Implied volatility across asset classes has receded in recent months as the barrage of global systemic risks (US-China trade war, disorderly Brexit and the manufacturing slowdown) has dissipated. Even though FX vol, along with other asset volatilities, remained...

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Neutral on Industrial Commodities Despite Low Inventories

There has been much commentary pointing out low inventories for industrial commodities and the potential for a squeeze higher in prices. Inventories are indeed very low (as shown in the top left chart using LME warehouse data) but this seems to have been a persistent...

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