Transcripción
Amanda Agati:
Investors who were hoping that March would come in like a lion and out like a lamb for markets– did not get their wish this year!
So, is a broader downturn on the horizon? The bond market has already given us some clues if you have been paying attention…
Welcome to the April edition of Adding Alpha!
The month of March was a not-so-friendly reminder for markets that relief rallies are easy, but staying power is harder.
The biggest signal right now is coming from interest rate volatility in fixed income markets. The MOVE index, the bond market’s equivalent of the VIX for equities, is sitting around 98, compared with a 20-year average closer to 85. Just before the conflict with Iran began, it was closer to 73.
In fact, this past Friday marked the largest one‑day jump in the MOVE index since octubre de 2024, when the last major repricing episode in rates markets occurred.
When rate volatility spikes like this, it’s incredibly easy for investors to get caught flat‑footed. It’s not just about direction; it’s also about speed.
The bond market is also sending a much broader message. High deficits. Elevated debt levels. And now, a war to finance.
This combination is putting pressure on policymakers. The bond market is effectively saying that the margin for fiscal and monetary policy errors is shrinking, and that the market is going to demand compensation for that uncertainty.
Another way to put it: the bond vigilantes may not be riding into town, but they’re definitely closing the ranks!
Here’s a disconnect that’s worth paying attention to. If we were truly heading toward a classic U.S. recession, you would normally expect long‑term yields to be falling, not rising. Instead, yields have moved higher as oil prices have risen.
That tells us markets are focused less on an imminent growth slowdown and more on inflation persistence, higher term premiums and longer‑run funding concerns.
Looking at the yield curve, we’ve seen the 2s‑10s flatten by about 20 basis points over the past month, but importantly, that flattening has happened at higher absolute yield levels. The entire curve has shifted up.
The 10‑year U.S. Treasury recently moved above 4.25%, a key technical resistance level, and built momentum through it, reflecting growing concern that higher energy prices could feed into more sustained inflation, rather than a one‑off shock.
At the front end of the curve, markets have repriced aggressively. We’ve gone from expecting two fed funds rate cuts, to no cuts and now we are even hearing chatter about possible rate hikes from the European Central Bank and the Bank of England.
That kind of whiplash tells you just how sensitive markets are right now, particularly outside the U.S., where higher oil prices have been hit much harder given the recent conflict.
Europe is especially exposed, which shows up clearly in the wide Brent‑to‑WTI spread, now well over $12. The U.S., as a net energy exporter, has more of a buffer than many realize, though it is not entirely insulated.
Yes, financial conditions are tightening again, but context matters. They’re only back to roughly five‑year average levels, which historically have been consistent with positive support for markets.
Credit spreads tell a similar story. They’ve widened, but from extremely tight starting points:
Investment grade is about 20 basis points wider from January lows. Below‑IG spreads are about 60 basis points wider. CCC spreads are wider by approximately 100 basis points. Triple-C’s are the market’s real‑time proxy for default risk and risk appetite at the weakest end of the credit spectrum. C’s tell us where stress shows up first, and they’re still about 50 basis points from their five-year average.
This is a market that is repricing risk, not signaling a systemic credit event, so far. And let’s face it, there are a lot more macro risks swirling in the background today, then prior to the turn of the calendar.
And until we have clearer answers on inflation, energy prices and geopolitics, well… it ain’t over ’til it’s over.
