Sept 14. Keeping up with the Joneses, risk parity style

–On Monday there was a slight steepening on the back end of the curve, and on Tuesday this bear market steepening became more pronounced.  New highs in many curve measures, for example 2/10 treasury spread gained 3.2 bps to close at a new recent high of 90 (this was as low as 75 at the end of August).  5/30 rose just over 2 bps as the treasury concluded the 30 year auction yesterday, to a level of 121.5.  Red eurodollars to deferred all made new highs, with red/gold pack spread +3.75 to 51.625.

–The BoJ meeting is a week from today, with Reuters reporting that negative rates will become the new centerpiece of policy.  Just another indication that central banks are flailing about rather than providing confident guidance.  The yen has weakened modestly.

–Sept ED midcurves expire Friday as do equity options.  A lot of talk about risk parity trades strategies.  Given the fact that central banks have compressed volatility/risk, and the fact that correlations between markets have been behaving in unexpected ways, I’m sure it will take very nimble managers simply to keep pace with the losses of various asset classes.

–From Investopedia: Risk parity considers four different components: equities, credit, interest rates and commodities, and attempts to spread risk evenly across the asset classes. The goal of risk parity investing is to earn the same level of return with less volatility and risk, or to realize better returns with an equal amount of risk and volatility (versus traditional asset allocation strategies).
–Retail sales and PPI Thursday, with CPI on Friday.
Posted on September 14, 2016 at 5:17 am by alex · Permalink
In: Eurodollar Options

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