Treasuries Tremble
Even the Treasury market, where unprecedented Fed support has muted swings for months, is showing signs of anxiety. Expectations for price volatility in three months versus four weeks are at a level only exceeded once in the past decade. Some traders have been buying options to hedge a potential rush of capital from investors fleeing stocks.
“Rate options appear to be putting increasing weight on events after the November 3 U.S. election date,” Wells Fargo analysts Michael Schumacher, Zachary Griffiths and Erik Nelson wrote in a note. “If the lion’s share of vol were associated with the election, then the vol difference should have collapsed on Sept. 4, when the two-month expiry began to include Election Day.”
Even the subdued swings, with volatility near record lows, can be seen as a signal that traders expect political turmoil. An uncertain outcome would force the Fed to keep rates near zero and delay any major policy changes.
Going For Gold
It’s gotten more expensive to protect against swings in the price of gold, a traditional haven not known for wild moves. Implied volatility on the $78 billion SPDR Gold Shares fund, ticker GLD, jumps in November and stays elevated through December’s contract.
Buying protection against GLD swings is a “direct” way to hedge for the prospect of a delayed election, according to Tallbacken Capital Advisors’s Michael Purves.
Election turmoil “raises questions about the quality of governance in this country, it raises questions about the dollar and it’s one of the reasons why people are paying up for gold vol in this period,” said Purves, Tallbacken’s chief executive officer. “Gold may be the cleanest way to play this election.”
--With assistance from Rachel Evans and Edward Bolingbroke.
This article was provided by Bloomberg News.