Treasuries Not Buying Stock Optimism in MOVE-VIX Spread: Options
?by Callie Bost
(Bloomberg) — While bond and equity investors often see the world differently, the gap in perceptions is getting extreme.
Measures tracking levels of nervousness in the government debt and stock markets have been diverging all year and Thursday reached the widest since September 2013, according to data compiled by Bloomberg. Most of the spread reflects a 35 percent jump in fixed-income price turbulence as measured by the Bank of America-Merrill Lynch Option Volatility MOVE Index.
At issue is a disagreement over when and if pricing power will return to the American economy, according to JPMorgan Chase & Co. strategists. Bond investors are increasingly convinced the U.S. economy is headed for deflation while stockholders can?t resist making bets that it isn?t.
?We see recent volatility largely driven by a tug-of-war between deflation and reflation expectations,? JPMorgan strategists led by Dubravko Lakos-Bujas wrote in a Feb. 5 note. ?Bond markets seem to be leaning towards the deflation camp as yield levels continue to decline and yield curves flatten. On the contrary, the resilience of equity prices has thus far shown hope for reflation.?
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