CNBC’s Scott Wapner raised with colleague Michelle Caruso-Cabrera the question of why bond yields had moved as much as 8 basis points in a single day.
She referred to remarks by the ECB’s Mario Draghi about factors such as lack of liquidity and crowded trades, and “Volatility leads to more volatility.”
Wapner asked Suni Harford,
of Citigroup North America, whether traders had grown “too complacent.” She responded that traders were watching events in Europe when they should be looking at payroll numbers about to be released in the U.S.
Wapner noted that equities had made two triple-digit moves already by noon.
Pete Najarian, of Option Monster, also spoke of illiquidity while noting that the VIX remained low at 15, so traders could still buy cheap protection for their portfolios, and volume there showed traders were getting “very aggressive” in buying calls on the VIX.
Wapner remarked that, “The Fed wants to keep rates low, while the market, on some days, is in danger of getting away from the Fed.”
This writer would observe that these blogs have predicted this would happen and that Chairman Yellen’s vision of a smooth rise in rates at a time of the Fed’s choosing may be preempted by the market itself, and we have reported doubts by contrarians like Peter Schiff, CEO of Euro Pacific, that the Fed will ever act, because Wall Street is addicted to Fed support.
Steve Liesman referred to remarks by Bill Dudley, President of the New York Fed, asserting that the Fed is “taking its cue from the market and preparing the way for a rate hike,” and Yellen wanted “to take some air out of the balloon so there wouldn’t be a violent reaction once the Fed does act” (Liesman’s words in both cases).
This writer has suggested it is already too late, and St. Louis Fed President Jim Bullard has said the Fed should have acted last fall. Liesman reported, “The IMF has come out today and said the Fed should not raise rates until mid-2016 and should wait until wages are rising,” and given the Fed’s “responsibility for global financial stability, they don’t see the world as not quite ready for an interest rate hike, even though the writing’s been on the wall for quite some time.”
Jon Najarian credited Yellen’s recent remarks with convincing markets the Fed will act and causing the move in bond yields to be less volatile than earlier spikes.
Next, the heat map
at the opening in Europe showed widespread but modest declines in equities and an upward move in bond yields that had come back a bit.
CIO of ABN AMRO, called the bond market “a no-fly zone,” saying, “We are in times when we need to have really extreme tactical asset allocation, staying out of the bonds, staying underweight in equity, and a big buffer of cash, but what is important is to define the type of volatility we have in the bond market. We may have low volatility and then spikes, and that’s the thing to play.” This writer would add that some traders will like these conditions.
In the last clip, Anantha Nageswarin,
CEO of Vansight, attributes Lagarde’s remarks to concern about effects of a rate hike on China and emerging markets and accuses her of ignoring the effects of years of accommodation. This writer notes that Lagarde’s recent interview with Yellen showed the IMF less sanguine than the Fed in its outlook but hoping for the best.
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