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Market nervousness is increasing. As year end approaches investors are looking to protect gains made; are wary of another bout of budget wrangling in Washington; and, of course, some are cowed by the prospect of the Federal Reserve reducing its stimulus programme.
The US November non-farm payrolls data will be released on Friday. If the number comes in north of the 180,000 of net new positions forecast by analysts, expectations of a Fed taper in December will increase.
All of this is pushing up volatility costs. The JPMorgan Global FX Volatility index has moved to an eight-week high, while the CBOE Vix, tracking stocks, remains low by historical standards but by Thursday’s market open had risen 20 per cent in the previous seven sessions.
And second-guessing the Fed is understandably raising the angst levels in US Treasuries as yields trundle higher.
Indeed, Bank of America Merrill Lynch notes how its MOVE index, tracking the volatility element of US government bond options, has broken above what it terms “the pivotal 73.0 level” (dotted line in the chart).
December is traditionally the strongest month for the MOVE, since 1988 sporting an average gain of 5.3 per cent, says the bank.
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