Already have an account? log in
This article is FREE for you
Create a free account and join institutional investors, analysts and strategists from the world's largest banks
By submitting your email address you agree to receive communication by email
Diamond Hands
Risk sentiment was reasonably buoyant Wednesday, as global equities rose lacking any obvious catalys
OR, subscribe now for unlimited access
By submitting your email address you agree to receive communication by email
By submitting your email address you agree to receive communication by email
The big fear is UST bonds and stocks trade with positive correlations. And it happens historically~ something like 30%(?) of the time. If you put that into a risk model your volatility is significantly higher in that case, than the more typical case of negative correlations or at least 0 correlation. At that point you have to guess at which segments in stocks will perform well and lower your bond duration. And if the relationship changes again, you are in deep doo-doo….
It seems the Feds are trying to tap the breaks on the fall in value of longer-term treasury bonds as evidenced by Bostic’s comments. So the negative correlation stops immediately (for the day anyway) — and risk assets get another push. The Feds have a limit to how much it allows the market to determine price of bonds. Seems the lower limit has been reached in just a few days. Too bad the Feds cannot leave things alone…
H-Man, if we get 50bps in March, stocks will dive, Tomorrow will tell if 50 has a chance.