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The 10-year Treasury yield has broken the downtrend that dates back to 1987 and is now sitting just under 5.25%, the double top from 2006 and 2007. Get through that, and there is not much in the way until 5.50% and then 5.90%. The 30-year has already cleared its own level, and the triangle it is breaking out of measures to around 6.7% if it completes. Real yields are moving the same way, with the 10-year real yield closing in on 3% and the 5y5y forward telling you the market now sees neutral much higher than anything we’ve seen for two decades.
Navigating The Market · By Michael Kramer
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That makes this week’s data unusually important. JOLTS on Tuesday, PCE and the final GDP revision on Wednesday, ISM manufacturing on Thursday, the September jobs report on Friday, and Micron in between. Strong prints reinforce the move in bonds. The last S&P Global PMI alone sent the 10-year up 15 basis points in a day.
Meanwhile, the equity market is not pricing any of it. Bond volatility has exploded, and the VIX is still under 15. Implied correlation is near record lows, which means there is almost no room for the VIX to fall from here even in the best case. The asymmetry is skewed one way, and it is not the way the S&P 500’s new highs suggest. Beneath the index, the equal-weight, the Russell, and even the Dow are all telling a different story.
Full breakdown in the video, including where the VIX should trade based on correlation and single-stock vol, and why this week’s events could be the catalyst that closes the gap.
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