Longitudes and Latitudes

Watching the bond markets

Started the week in Charleston, flew to LA for a conference, redeye back to CHS and flew down to Florida for a weekend wedding (son of wife’s best friend). Not my favorite kind of week. My Whoop is telling me that I’m in a coma. 🤣🤣

Anyway, I’m a bit off on the usual publishing schedule. Sorry about that. Especially as markets are bringing some funk. Yesterday seemed fine, but bond markets are riled up today and any continuation of this action would not be good for equity markets.

As of yesterday’s close, the VIX Mix had rebounded back into the lower end of the bullish range.

The component count improved to 10 bullish with only one bearish. On the darker side, the trend line has clearly lost touch with the move in SPX. The volatility complex is simply refusing to throw its full support behind equity markets.

Today is interesting in that the big increase in bond vol is not being transmitted to the VIX futures. As shown below, there is some lift at the front end, but essentially no move in the outer months. And even the rise in the May futures is primarily a function of its scheduled expiration next week. It will be tracking spot VIX more closely each day until it disappears next Wednesday morning.

For what it’s worth, we are paying close attention to behavior in the bond markets. Rising rates are no bueno for equity markets that have been on fire. Both corporations and the US government have a lot of bills to pay/refinance. The 30-year Treasury yield has crossed above 5%. Things will start to break if the 10-year gets up to those levels. And that will likely give a strong bid to equity volatility. You should be thinking about how you could use that to your advantage.

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