The negative correlation between asset prices and economic surprises is becoming increasingly apparent😯
Moreover, as further signs that the market is turning increasingly confident that the Fed is truly nearing the end of its hiking cycle, interest rate vol has finally cratered in the last 3 months after stubbornly diverging from equity and FX vol for much of the year. Despite a strong bear-steepening move higher in bond yields over the past month, implied vols have come down and bond markets appear to be much more sanguine that there will no ‘taper tantrum’ this time, despite sticky pricing pressures, rebounding oil prices, and a QT plan that is still operating as scheduled. Asset prices are likely to remain well supported with this sentiment, but a lot can change in the winter, especially if oil prices continue to spike higher from here.
