SPX Gamma Update
Finally, the markets were able to unfreeze und release some volatility as one would expect in such a deeply negative gamma environment.
The S&P 500 was able to recoup heavy losses, but total net gamma still dropped to minus 500M which is suggesting elevated levels of realized vol in the days ahead.
In early trade it looked like the value/growth rotation was about to turn into a good old fashioned sell-off as value got sucked into the downward spiral, but the market, especially the growth basket was able to stage a impressive intraday rebound and gained about three percent from its low amidst a drop in yields in the regular bond trading session.
Fundamentally it's a mixed bag with lots of unsolved issues at the moment:
- Pfizer wants to have Omicron vaccine ready in March.
- Senator Manchin is no longer interested in passing any legislation resembling the Build Back Better Act.
- Mixed rhetoric coming from Russia-US. talks. Russia downplays war plans, but US apparently not willing to concede to Russia's demands regarding further expansion of NATO.
- Goldman expecting 4 hikes in 2022, while Jamie Dimon would be not surprised if the Fed hikes even more frequently.
Of all the above the market attaches probably most weight on the monetary issue and all eyes will be on the CPI print on Wednesday which will hopefully add some clarity about the future path of monetary policy.
I have posted a chart mapping the term premium of 10 year notes. Term premium is the surcharge, bond investors are demanding in the form of yields for holding longer term bonds. This surcharge is currently negative, but if we move back to historically more typical levels when the Fed normalizes it's balance sheet, yields a plenty of room to shoot higher, which would feed into volatility of course.
Stay safe.
The S&P 500 was able to recoup heavy losses, but total net gamma still dropped to minus 500M which is suggesting elevated levels of realized vol in the days ahead.
In early trade it looked like the value/growth rotation was about to turn into a good old fashioned sell-off as value got sucked into the downward spiral, but the market, especially the growth basket was able to stage a impressive intraday rebound and gained about three percent from its low amidst a drop in yields in the regular bond trading session.
Fundamentally it's a mixed bag with lots of unsolved issues at the moment:
- Pfizer wants to have Omicron vaccine ready in March.
- Senator Manchin is no longer interested in passing any legislation resembling the Build Back Better Act.
- Mixed rhetoric coming from Russia-US. talks. Russia downplays war plans, but US apparently not willing to concede to Russia's demands regarding further expansion of NATO.
- Goldman expecting 4 hikes in 2022, while Jamie Dimon would be not surprised if the Fed hikes even more frequently.
Of all the above the market attaches probably most weight on the monetary issue and all eyes will be on the CPI print on Wednesday which will hopefully add some clarity about the future path of monetary policy.
I have posted a chart mapping the term premium of 10 year notes. Term premium is the surcharge, bond investors are demanding in the form of yields for holding longer term bonds. This surcharge is currently negative, but if we move back to historically more typical levels when the Fed normalizes it's balance sheet, yields a plenty of room to shoot higher, which would feed into volatility of course.
Stay safe.
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