Key Takeaways with Craig
US Equity prices declined again today to begin the last week of September while US Treasury yields continued to climb. With the price decline in stocks, implied volatility in CME’s Equity Index options rose again and is trading at levels we last saw in mid-June.
Once again using CME’s Micro Treasury Yield contracts as a proxy for the on-the-run yields, we saw the following price moves today:
- 2-Year Micro Yield: 4.315% | +8.7 basis points
- 5-Year Micro Yield: 4.165 | +21.4 basis points
- 10-Year Micro Yield: 3.878 | +18.3 basis points
- 30-Year Micro Yield: 3.686 | +7.6 basis points
As you can see from the above numbers, at the time we wrote this column in late afternoon trading, the 2s versus 10s inversion is currently at about 44 basis points.
Foreign Currency futures markets at CME remain active as the US Dollar continues to strengthen versus most major currencies. Highlighting those moves was the British Pound that fell to an all-time low against the US Dollar. To illustrate, we included a couple of QuikStrike graphs below.
The top graph shows the futures price and 30-day implied volatility of the Pound versus US Dollar going all the way back to January 1st, 2007 (the earliest date for which we had data in QuikStrike). The orange line provides a nice illustration of just how far the Pound has fallen. The blue line shows that only during the beginning of the COVID pandemic in 2020, the Brexit votes in 2016 and the financial crisis around 2008 and 2009 has implied volatility in the Pound options at CME been this high.
The bottom graph shows a different perspective on the British Pound price and volatility. The bright green line shows the current October volatility (upper) and price (lower) versus October price and vol in each year since 2016.
So as we move through the last week of September, its reputation as a historically volatile month continues to be well-earned in 2022.
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