S&P 500 VIX INDEX ‘FEAR-GAUGE’ DROPPING & TREASURY YIELDS SPIKING AS INVESTORS SHUN BONDS FOR STOCKSS&P 500 worth is
S&P 500 VIX INDEX ‘FEAR-GAUGE’ DROPPING & TREASURY YIELDS SPIKING AS INVESTORS SHUN BONDS FOR STOCKS
- S&P 500 worth is inside placing distance of hitting all-time highs as shares proceed to rally
- US Treasuries promoting off because the rotation commerce steers traders out of bonds and into equities
- VIX ‘fear-gauge’ underneath stress however that won’t final if Treasury yield volatility spikes additional
Treasury yields are nonetheless extending increased. Traders shifting their asset allocations by rotating out of bonds and into shares stands out as a major driver of the transfer. A windfall of debt issuance, which is rising the availability of US Treasuries, additionally seems like it might be contributing to the most recent surge in sovereign rates of interest. For instance, since Friday’s buying and selling session, the ten-year Treasury yield has climbed nicely over 15-basis factors and nears 0.7%.
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VIX INDEX PRICE VERSUS TEN-YEAR US TREASURY YIELD (CHART 1)
Chart created by @RichDvorakFX with TradingView
Final time US Treasury yields ascended sharply like this was roughly two months in the past. The aggressive selloff in ten-year Treasuries between 02-08 June pushed charges from about 0.70% to the 0.90% stage. This was then adopted by a notable spike increased in volatility, illustrated by the VIX Index ‘fear-gauge,’ as main inventory market indices turned decrease as soon as yields began to recoil.
VIX INDEX PRICE VERSUS S&P 500 INDEX PRICE (CHART 2)
Chart created by @RichDvorakFX with TradingView
On that observe, it might be cheap to contemplate the possibility that shares stoop once more within the occasion that Treasury yields gravitate again towards historic lows. Maybe the annual Jackson Gap Symposium scheduled later this month may very well be used as a platform by the Federal Reserve for the central financial institution to double down on its dedication to protecting benchmark rates of interest anchored close to zero.
| Change in | Longs | Shorts | OI |
| Each day | -18% | 4% | -1% |
| Weekly | -10% | -1% | -3% |
This would possibly encourage traders to pile again into bonds. If that’s the case, it may bode poorly for the rotation commerce at present weighing positively on inventory costs and negatively on bonds. Owing to the inverse relationship sometimes held between volatility and shares, this could possible present a optimistic enhance to the S&P 500 VIX Index much like what was witnessed this previous June.
VIX INDEX PRICE VERSUS US DOLLAR DXY INDEX PRICE (CHART 3)
Chart created by @RichDvorakFX with TradingView
Together with a rally within the VIX Index that might possible correspond with a retracement decrease in Treasury yields and the S&P 500, there could also be potential for the anti-risk US Greenback to catch a bid as nicely. The US Greenback is a high safe-haven forex that tends to rise amid deteriorating market sentiment, which is basically on account of its huge liquidity and standing because the reigning world reserve forex.
Hold Studying – Markets in Limbo as Volatility Gyrates: VIX, EVZ, VXEEM, OVX
— Written by Wealthy Dvorak, Analyst for DailyFX.com
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