Modest Losses For Major Currencies Against The US Dollar, With The Exception Of The Yen

Volatility in US rates and credit has caused Japanese investors to sell some exposure to positive carry assets, creating upward pressure on the JPY and big moves in out-of-the-money JPY implied volatility

Changes In The JPY 1-Month Implied Volatility Smile | Sources: ϕpost, Refinitiv data


Familiar Story Playing Out As The Fed Appears Committed To Dealing With Inflation: Front-End Rates Rose Today And The Curve Flattened

The market is currently pricing in just a little more than 2 hikes through 2022, with about 80% chance of a hike by the end of June; that is less hawkish than notable sell-side economists like GS who see 3 hikes through 2022

Fed Hikes Priced Into 1M USD OIS Forward Rates | Source: Refinitiv


Spreads Wider Across The Credit Complex, ICE BofA US Cash Indices End November Up 0.1% For IG, Down 1% For HY

The primary corporate bond market was virtually closed today in the US, with rates volatility and much wider spreads keeping issuers on the sidelines

1-Month Performance Of ICE BofA US Corporate Indices By Rating | Sources: ϕpost, FactSet data


Broad Slide In US Equities As The S&P 1500 Falls 1.9%, Led Down By The Telecom And Utilies Sectors

Huge volume of trading in US markets today, with close to 1.5 billion shares in S&P 500 stocks changing hands, 4.8 standard deviations above the 3-month average volume

CME S&P 500 Index Volume Oscillator Over The Last 5 Years | Source: Refinitiv


The US Dollar Index Dipped Further Today, Despite Strong Tailwind In Short-Term Rates Differentials

The magnitude of Friday's risk-off rise in the Japanese yen was easy to spot in 1-month 25-delta risk reversals (see chart below), with the one-year z-score moving down over 4 standard deviations

1-Year Z-Scores In EUR, JPY, CNH Risk Reversals | Sources: ϕpost, Refinitiv data


Rates Rise At The Front End Of The Curve As Powell Says It's Time to Retire The Word Transitory To Describe Inflation

A lot of volatility as forward rates are again pricing in at least 2 hikes through 2022, with implied yields in December 2022 Fed Funds futures (FFZ2) rising 10bp in a reversal of Monday's drop

Fed Hikes Priced Into The 3M USD OIS Forward Curve | Sources: ϕpost, Refinitiv data


Lower Rates At The Front End Of The Curve, A Dip In Rates Volatility And Tighter Spreads Bring Nice Bounce In High Yield Bonds

In a new note, Credit Suisse analysts point out that December should be a good month for US credit, with positive seasonality and reduced supply helping prices higher

Favorable Calendar Should Help US Credit End The Year Higher | Source: Credit Suisse


Solid Rebound In US Equities After Friday's Selloff, Led By Technology And Consumer Discretionary

The high volume of trading after a long weekend favored liquid stocks, which helped large-cap / growth stocks trounce the performance of small-caps / value stocks

S&P 100 Market Caps | Sources: ϕpost, FactSet data


Euro And Yen Spot Rates Down Today, As Changes In Real Rates Differentials Favor US Dollar

Implied volatilities fell back to start the week, after a dramatic risk-off move on Friday generated a 5 standard-deviations drop in 1-Month 10-delta JPY risk reversals

One-Year Performance Of Major Currencies Against The US$ | Sources: ϕpost, Refinitiv data


Treasury Yields Rise At The Open, Fall Intraday To Close Just Off The Lows As Powell's Written Testimony Seen Tilting Dovish On Omicron

Inflation breakevens rose further as front-end rates have come down sharply in the last couple of sessions: total Fed hikes by the end of 2022, derived from December '22 Fed Funds Futures (FFZ2), are down 20bp since last Wednesday to just 44bp now

US Treasury Curve Spreads | Sources: ϕpost, Refinitiv data


Nu Variant Brings Huge Drop In Rates, With Both Inflation Breakevens And Real Yields Sliding On Friday

The 3M-2Y Treasury spread was down 13bp today, and short-term rates volatility is at the highest level since March 2020, an indication that uncertainty may soon be overpriced; Fed funds futures now price in 1.0 hike by the end of July '22 (down from 1.5) and 46 bp of hikes by end of 2022

US Rates Volatility At Highest Level Since March 2020 | Sources: ϕpost, Refinitiv data


The Rise In US Short Rates And Widening In Rates Differentials Bring Down Yen, Euro

Notable moves today: the Turkish Lira rebounded nicely (up 6%), while the Kiwi dollar fell over 1% after a 25bp hike in the guiding rate (in line with consensus) disappointed bulls who had hoped for 50bp

EUR/USD Spot Rate vs EUR-USD 18x24 Forward Rates Differential | Source: Refinitiv