I probably oversold this post with that title, but this chart will tell you a lot about what’s going on. Here you see the yield on the 30-year Treasury bond moving somewhat closely with the Morgan Stanley Cyclical Index (^CYC).
In the other words, investors are taking on more risk. They’re leaving the safety of Treasury bonds at the same time they’re raising the value of cyclical stocks.
What’s also happening is that the Volatility Index (^VIX) is falling. The VIX got down to 17.13 today. It was close to 50 in May.
Does this contradict the chart? I don’t think so. While the risk preference of investors is rising, the implied volatility is falling. Those are two risk measures but they don’t necessarily measure the same thing. Risk is one word we use for many different developments. My guess is that the lower volatility reading reflects that investors are more locked-into the current trend — not a judgment of what that trend is.
Posted by Eddy on December 7th, 2010 at 1:20 pm
Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 for the last four years in a row. (more)
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