The VIX Curve Contributed to Today's Stock Rally
From the Buzz & Banter: While fears over equities have abated, Treasury investors remain ambivalent toward the events in Ukraine.
I wanted to highlight a comment from Friday afternoon on the Buzz & Banter [subscription required] written by Zebra Investment Advisors manager Fil Zucchi that the VIX (INDEXCBOE:VIX) curve had inverted and was displaying a significant amount of fear. It seemed that many active investors wanted to go home long as some form of protection in case World War III started over the weekend. The March VIX contract, which expires today, is down significantly (-1.58 points) in addition to the spot rate (-2.28 points), which is causing the curve to return to a more normal steepness. I've included the chart below comparing today to Friday.
Click to enlarge
I have no edge here, but this is certainly one of the reasons behind the equity rally today.
Treasuries remain quiet. This, at face value, would suggest that the jury is still out on the Ukraine situation. I thought it was interesting earlier that the curve had bear flattened after last week's broad rally from the three-year to the 30-year.
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