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“If you’re lonely when you’re alone, you’re in bad company.” – Jean-Paul Sartre
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Futures are basically flat this morning as the Nasdaq and S&P 500 each look to extend their winning streaks to ten and nine, respectively. The only data on the calendar today is jobless claims at 8:30, but there is a decent amount of Fedpseak to navigate including Chair Powell at 2 PM. With the market going up every day now for nearly two weeks, you can imagine that investor sentiment has improved. In this morning’s latest update to the AAII sentiment survey, bullish sentiment surged from 24.3% up to 42.6% which is the highest level since August. Bearish sentiment, conversely, has been nearly cut in half falling from just over 50% (50.3%) down to 27.2%.
As treasury yields have collapsed over the two weeks, short-term returns on long-term US Treasuries have surged. Take the iShares 20+ Year US Treasury ETF (TLT). Over the last two weeks, it has surged over 7% putting its two-week change in the 99th percentile relative to all other ten-day moves in the ETF’s history. It’s still down over 7% since the end of August, but that’s a story for another day.
Given the magnitude of the recent move and the big losses we have seen in TLT in recent months, it shouldn’t come as a surprise that the ETF’s day-to-day volatility has also become elevated. Over the last 50 trading days, TLT’s average daily move has been 1.10% (up or down) which ranks in the 94th percentile relative to all other periods. The only times where this measure was higher were during the Financial Crisis, when S&P downgraded the sovereign debt rating of the US from AAA, briefly during COVID, and most recently, late last year and into early this year.
While volatility in the Treasury market is historically high, volatility in the equity market remains low. Over the last 50 trading days, the S&P 500 tracking ETF (SPY) has been just 0.65% which ranks right in the middle of its historical range.
With TLT averaging a daily move of over 1.1% it has been about 45 bps more volatile than SPY over the last 50 trading days. Since the inception of TLT in late 2002, there were just 17 trading days spanning late 2010 and into early 2011 and just another 5 trading days in July 2015 where the spread was wider. In other words, you don’t see this very often.
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