The Macro Trading Floor Volatility is Coming
Mar 15, 2024
Exploring the impact of rising inflation on global macro asset classes and trade ideas. Analyzing real rates near 2% and its effect on Federal Reserve policies. Speculating on $100 oil prices, rate hikes, and bond market volatility. Delving into economic forecasts, Swiss National Bank meeting, and online flexing dilemmas. Hinting at a special guest appearance and upcoming Spectra School sign-up.
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Low Volatility May Soon Shift
- Bond market volatility is at lows, indicating strong extrapolation of a soft landing and low economic uncertainty.
- The next regime shift towards higher volatility might be triggered by inflation re-acceleration or market shocks.
Credit Spreads Reflect Optimism
- US high yield credit spreads near historically tight levels equivalent to Goldilocks environments.
- Investors are selling optionality by buying credit spreads, yielding returns unless economic conditions deteriorate.
Manage Volatility Transitions Cautiously
- Avoid trying to front-run the low to high volatility transition due to high costs.
- Prefer buying volatility or selling into widening credit spreads to better manage regime shifts.