Where money is actually being put to work today, across equities, rates, credit, currencies and commodities.
Analysis
Index put protection is cheap because equity volatility is low, and equity volatility is low because the index leaders are insulated from the thing doing the damage. The hedge that pays in this regime is not an equity hedge.
Eleven stocks account for 71 per cent of the S&P 500 return this year. The familiar reading is crowding. The better reading is that a higher long rate has made everything else expensive to own.
Three month cross currency basis has gapped wider and the yen has retraced nine figures in eight sessions. European funds that borrowed cheap yen to buy dollar credit are the marginal seller.
Eleven of the fourteen deals priced since Labor Day cleared with concessions above 25 basis points, and one was pulled. Dealers are moving inventory into a market that has stopped absorbing everything offered.
The ten-year gap to Germany has widened 23 basis points since June with no rating action and no failed auction. European long duration is repricing for the same reason American long duration is, and a contested budget is the local excuse.
Bullion has risen 9.7 per cent in three weeks while long Treasuries fell, breaking a relationship that held for most of the past decade. The correlation between gold and the ten-year yield has turned positive, and that is the whole story.
Long-dated Treasuries sold off through a week in which the front end rallied, pushing the two-year to ten-year spread to 118 basis points. The move is about compensation for duration risk, not optimism about growth.
Borrowers who had pencilled in October deals moved them into the first week of September rather than market a long tranche into whatever the reinvestment announcement does to the curve. Concessions on high grade paper stayed thin. Everything below it paid up.
Auction results arrive as five numbers on a screen and get read as a verdict on demand. Most of the time they are a verdict on how well the pre-auction market guessed, which is a different and more useful thing to know.
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