Salient to Investors:
Options traders are paying record prices to protect against swings in long-term U.S. Treasuries relative to stocks amid concern inflation will accelerate.
The ratio between implied volatility for contracts closest to the iShares Barclays 20+ Year Treasury Bond Fund and the SPDR S&P 500 ETF Trust reached the highest since at least 2005 on September 14.
The cost of puts relative to calls for U.S. equities on Sept. 14 was the cheapest in over three years .
The Fed’s favorite bond-market gauge of inflation expectations increased to 2.8 percent on Sept. 18, above the central bank’s 2 percent goal.
The August consumer-price index rose the most since June 2009.
Hedge funds et al have raised bullish positions in 10- year T-notes to the highest since March 2008.
U.S. government securities are hovering at the most expensive levels ever.
Bret Barker at TCW said on September 18 that Treasuries offer litttle value as the Fed will ease longer than the market expected and inflation expectations are thus rising.
Wayne Lin at Legg Mason said the Fed is going to buy whatever it needs to buy in order to ensure economic growth, putting a floor under equities.
Wasif Latif at USAA Investments said Treasuries are overpriced but are attractive for safety in a low growth environment.
Stephen Smith at Brandywine Global Investment Management said investors are greatly underestimating the risk in U.S. bonds because the recovery is weak, but we are growing, so the downside is much worse than the upside.