Frankly talking, time period spreads have moved in direction of inversion and premium-adjusted inflation expectations have risen. The VIX has been elevated since February 2022 and geopolitical danger has elevated within the post-invasion interval. Progress, which had accelerated in response to weekly indicators, then decelerated. In different phrases, “Thanks, Putin.”
Determine 1: High panel: 10-year Treasury unfold – 3 months (blue), 10-year unfold – 2 years (pink), 10-year unfold – Fed funds (inexperienced), all in %. Backside panel: 5-12 months Money Stream – TIPS Unfold (darkish blue) and 5-12 months Anticipated Inflation (pink), each in %. Supply: Trésor through FRED, and KWW following D’amico, Kim and Wei (DKW) consulted on 02/18,
Word that whereas the Treasury-TIPS unfold widens instantly after which narrows following the invasion, inflation expectations measured after bearing in mind danger and time period premia have risen pretty repeatedly because the invasion. ‘invasion.
Determine 2: VIX (blue, left scale) and Financial Coverage Uncertainty Index, centered 7-day shifting common (black, proper scale), Geopolitical Danger Index, centered 7-day shifting common (pink, proper scale) . Supply: CBOE through FRED, policyuncertainty.com through FRED, Caldara/Iacovielloand the writer’s calculations.
The VIX has been elevated – as has the Geopolitical Danger Index – because the invasion.
Given these observations, it’s no thriller that high-frequency indicators of financial exercise resumed their decline with the invasion.
Determine 3: Weekly Lewis-Mertens-Inventory Financial Index (blue), Baumeister-Leiva-Leon-Sims Weekly Financial Circumstances Index for the US plus 2% development (inexperienced). Supply: New York Fed through Fred, WECIand the writer’s calculations.
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