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By Data Diary

Hardly a vote of confidence in the recovery this return to quantitative easing – even if it is balance sheet neutral. Apparently, liquidity remains fragile.  Consider where the CBOE put-call ratio was at the start of quantitative easing proper – when global liquidity was truly in a catatonic state:

While the ebullience that marked the first half of the year has subsided somewhat, current conditions are hardly indicative of an all-out squeeze.  It’s also interesting is that looking to the breakdown of the ratio, the volume in both puts and calls has fallen to levels not seen since Dick Fuld had the keys to the gym.

My sense is that it is wishful thinking to imagine that we have passed beyond the volatility that has characterised the last couple of years.  Maybe fatigue is setting in – people have just lost interest?  More likely we are passing through the end of one cycle and into another.  The government inspired rally in risk expired some months ago, until the next round of stimulus money gets put to work, the pull of debt deflation will have its way. No wonder Treasuries have been pushing to new lows – even dragging lesser credits in their wake:

Chances are that the risk curve will splinter once the motivation for the move in long yields is recognised.  A balance sheet recession is not good for anything but the most pristine of safe havens.  Volatility is cheap around current levels…it’s just a matter of theta.