Link to Report: Macro Volatility Digest
WHAT STANDS OUT:
- Cross-asset implied volatilities edged higher as cooler-than-expected core inflation and weak job growth momentarily quelled escalating bond yields. Interest rate volatilities notched another leg up with the MOVE Index advancing +13nms to 110 mid-week (3nms shy of its 1-year high) as the 30-year yield breached 5.63%, its highest level since 2002.
- Corporate bond volatilities have both continued to climb with investment grade (IG) and high-yield (HY) vols jumping from 6th and 11th percentile lows 2 weeks ago to their 79th and 84th percentile highs respectively. Note, however, the rise of IG implied yields primarily reflects the same rate uncertainty that’s driving the MOVE index spike, while the rise of HY implied yields has been driven primarily by investor demand for meaningfully more compensation for lower-quality credit risk.
- French sovereign credit spreads widened sharply over the past week, with the OAT-Bund spread reaching 140 bps and 5yr French CDS jumping to its widest levels since the European Sovereign Debt Crisis. The widening spread of French debt vs the eurozone’s anchor credit suggests that traders currently price this risk as a France-specific rather than a general Eurozone credit concern.
Chart: HY vs IG Spread Widens As Investors Demand More Compensation for Lower-Quality Credit Risk
Source: Cboe
