‘Apocalypse Postponed’

If you’re looking for “signs of greed,” BofA’s Michael Hartnett sees one.

He probably sees more than that, but he highlighted one in particular in the latest installment of his popular weekly “Flow Show” series, which this week struck a cautious tone on an increasingly cavalier market mood.

The spread between BBB credit and T-bills is now just 60bps, he said, the lowest in 40 years.

In fact, if you leverage series from Global Financial Data to construct a longer-term chart, the current spread is among the lowest in a century.

“[It’s] so rare,” Hartnett said, in the course of warning that “such greed” has historically “preceded tops and crashes.”

That’s hardly the only sign of greed in a market where animal spirits are stirring anew amid hopes that developed market central banks are near the end of their respective hiking cycles. “Investors are, by force, having to allocate back into positioning as rate vol continues to bleed cross-asset vol, especially as many fundamental investors are increasingly looking through a perceived ‘toothless’ FOMC’s ‘hawkish’ rhetoric,” Nomura’s Charlie McElligott said earlier this week.

The rates vol point is important. Recall that the MOVE began to recede once terminal rate pricing settled around 5% in October. With the exception of December’s hiccup, it’s been a fun ride for risk assets since then.

Hartnett juxtaposed the MOVE’s decline with Tesla’s rebound. “The most painful trade is always ‘apocalypse postponed,'” he said.