McElligott also emphasizes that the Fed’s T-bill buying and clear preference for keeping rates on hold barring some manner of unthinkable upside inflation shock should anchor rates vol., which in turn serves to compress volatility across assets.
“As long as Rate Vol remains suppressed thanks to Fed ‘forever unchanged” forward guidance and POMOs / asset-purchases in order to maintain ‘ample reserves’, we too should expect that cross-asset vols too will stay lower”, he writes.
That cross-asset vol. suppression means the market remains in “carry/momentum” mode.
As shown in the visual on the right, all major markets tracked in McElligott’s CTA model estimates are “at + or – ‘100%’ signals across the board, which then allows for more leverage to be deployed into the positions / larger gross exposures”.
Again, this is all good news at a time when the next Wuhan headline has the potential to throw markets for a loop.
The title of Charlie’s Wednesday note: “Down with disease”