Spotted — a(nother) potential sign of QE distortion in the market:
BNP Paribas observes on Friday that the US 10-year swap spread — the difference between the swap rate on a contract and the yield on a government bond — has moved sharply out recently, while the VIX — a measure of volatility, also known as the fear index — has remained subdued.
This they say could be down to distortions caused by prospects for yet more quantitative easing, with markets assuming the Fed will concentrate on putting public debt on the US balance sheet, rather than private risk.
That said, they add:
However, in March the turnaround of the swap spread indicated lower share prices.
And in March, the turnaround was much less extreme.
Though we’re not sure what to make of the two spikes over the summer.
Related links:
Unravelling the mystery of the negative US swap rate – FT Alphaville
Swooning canaries, exploding debt - FT Alphaville
The negative swap time-warp- FT Alphaville
Coming to America, Greece-style – FT Alphaville