Trump says Iran war "close to over" amid hopes for more negotiations
Investing.com -- Stifel has identified bond volatility as an attractive opportunity, noting that the MOVE Index and TLT are trading near one-year lows despite last week’s selloff when 2-year, 5-year and 10-year U.S. Treasuries rose approximately 18-20 basis points.
The firm’s volatility indicators show the fear index VIX climbing above 25 versus 19 on February 27, with skew profiles steepening across major ETFs. However, the equity market appears to be ignoring the fear reflected in volatility indicators, with the S&P 500 30-day realized volatility at 12, representing a roughly 14-point spread to VIX.
Stifel concludes that rates volatility appears cheap and index realized moves have not yet aligned with where implied volatility is priced.
The firm suggests a structure for a weakening real economy: Long TLT May 91 call at $0.97, representing 1.1% of spot price with 32.2 initial delta, referenced at $88.54.
Stifel examined four previous U.S. military actions in the Middle East and the resulting impact on oil prices and U.S. Treasury changes week over week. The firm notes that U.S. Treasuries selling off alongside rising oil prices is atypical, particularly given a MOVE Index near two-year lows and TLT volatility with a 12 handle.
The S&P 500 30-day realized volatility stands at 12, in the 48th percentile over a one-year lookback period, despite S&P 500 one-month implied volatility at the 89th percentile. Implied volatilities are showing higher risk pricing, but the index has not yet shown corresponding follow-through.
Implied moves are trending higher across almost all asset classes, with QQQ and SPY showing elevated pricing relative to eight-week averages. QQQ, IWM, and TLT are still pricing in line with realized ranges, while the remainder of sector ETF implied straddle moves are at a 50 basis points or greater premium.
Key events for the week include CPI data on Wednesday and Oracle (NYSE:ORCL) earnings on Tuesday. Oracle’s one-month put skew indicates some bearish activity in the stock, in the 70th percentile, and OAS credit spreads continue to widen.
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