Get 100% ad-free experienceMarket Pushed to the Max as Volatility Measures Hit a Wall Ahead of Key EarningsView all comments (0)0The Japanese Yen was stronger yesterday, although it’s unclear whether this was due to positioning around the election or the closing out of hedges. Today’s trading should provide a better insight into potential impacts on the long end of the yield curve. It could turn out to be a non-event, but based on price action and reports before the election, there seemed to be heightened anxiety around the vote, similar to events seen in France last summer and perhaps Germany this year.Those effects mainly appeared in bond spreads, particularly with both countries’ 10-year rates trading at their tightest relative to Italian bonds in quite some time.Additionally, supporting the case for higher long-term rates, 1- and 2-year CPI swaps rose again yesterday, likely driven by rising copper prices. It’s hard to see how rates don’t start climbing.The market currently resembles the setup in July 2024, particularly in terms of volatility. The day before yesterday, for example, the 1-month implied correlation index was slightly higher, indicating the market may have been offside.Moreover, the VIX index was down for most of the day, while the VIX 9-day index was significantly higher, creating a notable divergence. Fortunately, the VIX index eventually closed higher, resolving that inconsistency.Realized volatility reached a point where, if the S&P 500 continued rising, the 10-day realized volatility would likely increase. However, the index closed up only 14 basis points, allowing the 10-day realized volatility to finish lower. Today, if there’s a move exceeding 30 basis points, expect 10-day realized volatility to move higher. If the VIX starts rising today, it is a warning signal.Essentially, we are at a point where volatility and correlations have very little room to move, given that the big earnings start on Wednesday and realized volatility is low. The market has been pushed almost to the maximum, and while I can’t say with certainty that it can’t go higher, the returns should continue to decrease.Original PostMarket Pushed to the Max as Volatility Measures Hit a Wall Ahead of Key EarningsView all comments (0)0Latest commentsInstall Our AppScan QR code to install appRisk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.© 2007-2025 - Fusion Media Limited. All Rights Reserved.