Stefano Di Domizio at Lombard Street Research notes on Wednesday that the put/call ratio on the German Schatz (the two-year bond) has suddenly and seriously discorrelated from the put/call ratio on the Bobl (the five-year bond).
Here’s the chart:
Di Domizio says this suggests that investor caution over a hawkish ECB is back at record high levels.
As he explains:
The Schatz put/call ratio soared to 2.5, decoupling dramatically from the Bobl and Bund ratios. Put/call ratios trading at extreme levels are normally regarded as measures of risk reversal. Historically, put/call ratios on Schatz futures show some negative correlation to changes in the price of the contract, with the correlation strengthening when the ratio is trading at extreme levels. A high Schatz put/call ratio is suggesting markets are aggressively positioned for a hawkish ECB tomorrow, posing risks of a near-term reversal in the upward trajectory of short-term interest rates.
Which we guess also means that the pressure will be more than on Trichet to actually deliver on his crypto-speak.
Related links:
ECB criticised over expected rate rise – FT
This is not normal ECB tightening - FT Alphaville
Eurozone interest-rate hindsight - FT Alphaville
Hayek would have told the ECB to print more money - Money Illusion