End of day market thoughts
Updated: Apr 2, 2020
Real yields have stabilised and seemingly become less volatile, thanks to Central Banks answering the question on who will finance the huge Government Fiscal Packages to combat the fall out of Covid19.
As suggested in last Friday's post, lower volatility in real yields and better certainty on government debt financing should reduce volatility in risk assets. The Vix is off 20 points, but still at a very elevated level.
Today's out sized equity gains have NOT come with large government bond sell offs. That makes sense - Central Bank balance sheet expansion will help bonds and Gold.
A fly in the ointment is that high investment grade SSA paper seems to continue to struggle.
Equity indices are rebounding off hugely oversold levels (daily RSIs were below 15!).
SNACS currencies remain correlated to equity, gaining in tandem today.
Key standouts today:
Large rise in Gold in the risk-on trade
DXY failed to materially sell-off
Suggests to me that it's far to early to think the deleveraging has finished.
Current picture looks like a market that needs a breather and more information is required before the next moves are taken. Real yields and breakevens should offer good clues to risk asset investors.