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“Inexorably Rising Risk” And Other Observations

  • Written by Syndicated Publisher 41 Comments41 Comments Comments
    December 19, 2010

    Diapason Securities’ Sean Corrigan is rapidly emerging as one of our favorite macro commentators. With his dose of weekly skepticism, he has quickly assumed the position vacated by Goldman Sachs’ Jan Hatzius when it comes to the 3Ms: market, monetary and macroeconomic commentary (courtesy of the now well-known and very infamous flipping by the German strategist on his outlook on the economy). In his latest outlook piece, Corrigan dissects recent moves in the bond market, noticing a 6 sigma, three-decade statistical aberration when it comes to the 2s5s30s butterfly, and continuing through the implications of increasing bond vol on other risk assets (a topic which we believe will receive much more focus in the coming weeks and months), on fund flows (his views on the implications of the December Z.1 statement are worth the price of admission alone), on the cooling off of the European “economic miracle”, and lastly, on what China’s refusal to attempt a soft landing means for global risk. His conclusion is as always absolutely spot on: “in short, that risk assets can continue to rise, pro tem, it also means that RISK itself will be climbing inexorably up the scale and on into the danger zone.”

    From Sean Corrigan’s December 17 edition of Money, Macro and Markets

    As the increase in the total of US Federal debt outstanding since the LEH-AIG collapse reached the $4 trillion mark, another week began and another sell-off took place in the bond market, with 2004 Euro$ now a cool 140bps off their early November highs in one of those classic, up by the stairs, down by the escalator moves to unwind the previous four months’, Fed—inspired rally.

    Only a little less dramatic has been the thumping taken by the belly of the curve where — for example — the 2×5-30 butterfly has jumped 120+bps in just five weeks, a sizzling six-sigma move in a three-decade statistical record.

    To read this fascinating article in full click here;

    via Sean Corrigan On Six Sigma Events In The Bond Curve, “Inexorably Rising Risk”, And Other Observations | zero hedge.