Posts filed under “Fixed Income/Interest Rates”

Looking for for Volatility in All the Wrong Places

Where has all the stock market volatility gone?

U.S. equities have been surprisingly quite the past three years. There hasn’t been a one-day change of 2 percent or more in the Standard & Poor’s 500 Index since December, Bloomberg News reported. Data compiled by Bloomberg and Deutsche Bank AG note that this is the longest such streak since February 2007, when 164 trading days passed without breaching the 2 percent threshold.

Even more surprising is the lack of 1 percent moves. Eight weeks have passed without a change of that magnitude in the S&P500. “That’s the longest such streak we’ve seen in 21 years,” Business Insiderreported.

Salil Mehta discusses the lack of market action at Statistical Ideas. He notes exactly how low volatility has become during the past 6 1/2 years. The following list shows what percent of total market volatility occurred in each year during that period:

  • 2009 – 26 percent
  • 2010 – 16 percent
  • 2011 – 13 percent
  • 2012 – 16 percent
  • 2013 – 10 percent
  • 2014 – 9 percent
  • 2015 – 10 percent

Here’s another way of showing the distribution of volatility by year:


Source: Statistical Ideas


It isn’t for a lack of catalysts: investors are awaiting the Federal Reserve’s first interest rate increase in nine years; the Greek debt saga continues to cause troubles in Europe; China’s booming stock market shows signs of excess; and the Middle East remains a disaster.

My colleague Michael Batnick, writing at the Irrelevant Investor, notes that people searching for volatility are looking in the wrong places. Instead of watching stocks, he suggests looking at bonds.

Why is volatility in stocks falling while it’s rising in fixed income?

A leading candidate for this is the probability of a Fed interest rate hike. There has been a minor exodus from bonds based on expectations for an increase in rates in September or December (or both). The four-week moving average of bond flows is the most negative since the so-called taper tantrum of two years ago, according to a recent report from Bank of America Merrill Lynch.

The lack of clarity — and not the dreaded and often-misused “uncertainty” — seems to be the most commonly given explanation. Perhaps this will change during the lazy days of summer: when trading volumes fall, equity markets might get more easily pushed around.

For now, enjoy the low volatility. Once the summer ends, if rates start to rise and volume increases, you may be pining for these days without drama.




Originally published as: Searching for Volatility in All the Wrong Places




Category: Data Analysis, Fixed Income/Interest Rates, Markets, Trading

Bond Interest Rate Scenario Tool

Very cool tool from EatonVance that allows you to stress test your bond holdings to see how they will handle an increase in rates;   Click through to test what you may. Source: EatonVance

Category: Fixed Income/Interest Rates, Markets

The Fed Raising Rates?

The Fed Raising Rates? David Kotok Cumberland Advisors, May 26, 2015       It’s not about when; it’s about the path to get there. Suppose the Fed lifts rates on the short end of the yield curve by a quarter point in September. Or December. Will it really make a difference? Suppose the Fed’s…Read More

Category: Federal Reserve, Fixed Income/Interest Rates, Think Tank

Why Are Interest Rates So Low?

Why Are Interest Rates So Low? Marco Del Negro, Marc Giannoni, Matthew Cocci, Sara Shahanaghi, and Micah Smith Liberty Street Economics, May 20, 2015     In a recent series of blog posts, the former Chairman of the Federal Reserve System, Ben Bernanke, has asked the question: “Why are interest rates so low?” (See part 1, part…Read More

Category: Federal Reserve, Fixed Income/Interest Rates, Think Tank

Economy: Hot Enough for Stocks, Cool Enough for Bonds?

My hit today with Pimm Foxx and Betty Liu: Source: Bloomberg May 15, 2015, 12:30 PM EDT

Category: Asset Allocation, Fixed Income/Interest Rates, Media

Bond Tantrum or Schnitzel Tantrum

Bond Tantrum or Schnitzel Tantrum David R. Kotok Cumberland Advisors, May 14, 2015       “tan’trum, n. [earlier form tantarum suggests pseudo-L. coinage on tantara.] a violent, willful outburst of annoyance, rage, etc.; a fit of bad temper.”  Source:  Webster’s Deluxe Unabridged Second Edition. Tantara is the Roman word for the blast of a horn…Read More

Category: Credit, Fixed Income/Interest Rates, Think Tank

Time to Raise America’s Gas Tax

Get in your car and go for a drive just about anywhere in the U.S. You will be confronted with a transportation system desperately in need of a reboot. I’m not referring to a full upgrade to smart roads — the sensor-driven intelligent system that promises to move vehicles more cheaply and efficiently. Rather, I…Read More

Category: Fixed Income/Interest Rates, Really, really bad calls, Taxes and Policy

Trends Around 1st Fed Rate Hikes

Lessons For Lift Off – Recent sensitivities to interest rates, and trends around the 1st Fed rate hikes of 1994, 1999, and 2004

Source: Credit Suisse

Category: Fixed Income/Interest Rates, Video

Low Interest Rates and Financial Stability

Category: Fixed Income/Interest Rates, Think Tank

Interest Rates Aren’t Going Anywhere . . .

Source: BAML, Fiscal Times     I have been fairly agnostic on several issues related to where interest rates are heading. It has never been my job to forecast where the 10-year yield will be in six months. Not predicting and not caring are two very different things, however. Rates matter a great deal — to investors, to the economy…Read More

Category: Credit, Federal Reserve, Fixed Income/Interest Rates, Psychology, Really, really bad calls, Taxes and Policy