Ripping Rates, Rising Vol, Rising Risk

Rates matter (again)

Rates are starting to matter again. What looked like a contained move is turning into something bigger, as technical breaks, inflation risks, and rising volatility begin to align. The calm in equities is starting to look increasingly out of sync with what’s happening under the surface.

Takes out the trend

The US 10-year is breaking above the short-term downtrend and now trading well above the 200-day MA, though the average itself remains flat.

Source: LSEG Workspace

 

The big triangle

The US 10-year is still trading within a large triangle formation. A break higher from here could quickly trigger a powerful and complex shift in market psychology.

Source: LSEG Workspace

 

Rates follow oil

US 10 year following oil just as it is "supposed" to do, at least as long as people digest the shock.

Source: LSEG Workspace

 

Who remembers the 1970s?

Time to start thinking about that second wave of inflation, and you don’t even have to go that far back.

Source: ZH

 

Inflation expectations

Inflation expectations are starting from a much higher level than in 2021.

Source: BCA

 

This is new

SPX and rates have been tightly linked since the “mess” began. The last time the 10-year was at these levels, SPX was closer to 6000.

Source: LSEG Workspace

 

Source: LSEG Workspace

 

The vol regime has changed

The "era" of constantly resetting bond volatility looks over. VXTLT has been moving higher alongside the VIX in recent months, signaling rising stress across both rates and equities.

Source: LSEG Workspace

 

SPX doesn't like surging bond volatility

An update of a chart we’ve been revisiting for weeks: Everything is now pointing in the same direction. SPX simply doesn’t like rising bond volatility, period.

Source: LSEG Workspace

 

Rates breaking, equities next?

Rates are breaking higher, and equities haven’t caught up yet. If this move continues, the calm won’t last. SPX simply doesn’t handle rising bond volatility well.