While the market waited for NFP numbers to come out on Friday, the Fed declared the subzero temperatures as a drag on the economy. Unless you were selling de-icer or coffee during February, they were probably right. A little milestone kicked in today, in case you were not watching; FB closed at an all-time record just shy of the intraday high. Last year folks were wondering if this was the worst IPO in history, and this year they might be wondering when FB gets to $100.
Argentina devalued the peso today along with China providing less than stellar manufacturing data. It all added up to a mad dash for Treasuries and other safe havens like the Euro. What a difference a year makes. It was not too long ago that the run to above 3% in T-bills was a sure thing. At least, over the last few weeks coming into 2014 that is not the case.
It appears that the movement in the 10 year note has stopped being completely crazy. However, this does not mean that movement has stopped all together. In fact the 10 year and 30 year are both moving at a nice clip on a daily basis. The 14 day ATR on the 10 year is still WAY above where it traded before the ‘taper talk’ began. Looking at ETF’s that ATR of TLT is about 1.25 a day over the last 14 days. Yet, take a look at the 30 day IV chart of TLT
The earnings season has been a mixed bag so far. Mark commented about it on CNBC yesterday morning and the fact that IV is not really taking off. VXX is making year lows today and the IV in the SVXY (Pro Shares Short VIX futures ETF) is making a 52 week low today. Even with VIX cash up the VIX futures compressed a bit. The only thing cheaper than the IV is the realized volatility clocking in a at 7.27 for the SPX. The low volatilities seem to set a table for something higher down the road but we will need a catalyst. The earnings season has not provided one and the muted movement is having an effect on the skew in FB.
The VIX cash has been backward over the VIX futures for a surprisingly large portion of this month so far. The same cannot be true for the VIX futures themselves. Usually the sign of an official sell off, the VIX futures have yet to go backward since this sell off began. However, if we get one more day like today, I think that all changes. The VIX curve is about as flat as it can get without being backward:
As the SPX continues its rally though 1630 and toward 1650, may a novice is asking why the VIX isn’t touching all-time lows. The answer is simple: volatility
When the VIX got to its recent low realized volatility was in the toilet. We had been through about 2 straight months of nothingness. 10 Day HV was near 5 and both 20 and 30 day HV were near 10%. Looking at HV now we can see a clear difference. 10 day HV is closer to 10% and 20 and 30 day are actually trading at a premium to VIX.
One thing that is really interesting is how high realized volatility is in the VIX right now. While VVIX might be elevated, it actually pales in comparison to where realized vol on VIX cash is (even if the futures haven't been moving):
What causes this? One major thing to remember about volatility is that it represents standard deviations. The lower the price of the underlying, the lower the standard deviation should be. The VIX has, as you should know by now, really fallen off.