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US Negative Interest Rate Bets Surge To Record Highs

As the “deflationary supernova” sweeps across the world, dragging bond yields to zero-and-beyond, even the almighty omniscent Federal Reserve has been forced to capitulate as the ‘cheapness’ of Treasury bonds lures the world’s yield-hunters dragging it ever closer to the negative rate realities of Switzerland, Japan, and Germany. As rate-hike odds collapse, along with The Fed’s credibility, so investors are increasingly betting on the chance that the inevitable negative interest rate washes ashore in a US money-market-crushing manner. While bets on ‘NIRP’ in 2016 have faded modestly, expectations for a ‘below-zero’ rate in 2017 (and implictly a stock market crash) have never been higher


Govvie Yield Curve

We suspect the words “it could never happen here” were uttered numerous times in Switzerland, Japanese, and German halls of officialdom over the past few years…

Govvie Yield Curve

As the "deflationary supernova" sweeps across the world, dragging bond yields to zero-and-beyond, even the almighty omniscent Federal Reserve has been forced to capitulate as the 'cheapness' of Treasury bonds lures the world's yield-hunters dragging ... - Click to enlarge

Rate-Hike Odds

And with The Fed rapidly losing faith…

Rate-Hike Odds

As the "deflationary supernova" sweeps across the world, dragging bond yields to zero-and-beyond, even the almighty omniscent Federal Reserve has been forced to capitulate as the 'cheapness' of Treasury bonds lures the world's yield-hunters dragging ... - Click to enlarge

10Y Govvie Yields

It appears not only are Treasury yields attractively ‘cheap’ (and “safe”) to the rest of the world’s bonds…

10Y Govvie Yields

As the "deflationary supernova" sweeps across the world, dragging bond yields to zero-and-beyond, even the almighty omniscent Federal Reserve has been forced to capitulate as the 'cheapness' of Treasury bonds lures the world's yield-hunters dragging ... - Click to enlarge

World Bond Yield

But their relative moves to stocks also suggest something is amiss in equity land around the world…

World Bond Yield

As the "deflationary supernova" sweeps across the world, dragging bond yields to zero-and-beyond, even the almighty omniscent Federal Reserve has been forced to capitulate as the 'cheapness' of Treasury bonds lures the world's yield-hunters dragging ... - Click to enlarge

NIRP Bets

And so, traders are increasingly positioning for negative rates in 2017… or, as we explain below, positioning cheaply for a stock market crash…

NIRP Bets

As the "deflationary supernova" sweeps across the world, dragging bond yields to zero-and-beyond, even the almighty omniscent Federal Reserve has been forced to capitulate as the 'cheapness' of Treasury bonds lures the world's yield-hunters dragging ... - Click to enlarge

[the chart shows the cumulative open interest in par calls on eurodollar futures contracts that expire in 2016 and 2017 – basically options on short-term interest rates with a strike price of zero, such that they pay out if the Fed takes rates negative]

As we explained previously, when queried whether this is indeed a trade to bet on a market drop, Michael Green responded as follows:

[A reader] thought  this might be an attempt by hedge funds to hedge out their exposure to rising interest rates very cheaply.

 

My initial idea was that it actually could be a bet on negative rates (if for some reason the Fed had to come back into the picture with QE4).

 

The bottom line:

 

“Deep OTM puts on the S&P are very expensive while par ED calls are relatively cheap.

 

In my view, we are that inflection point where the Fed is going to start to waffle…the bear market beckons and they will not be able to stick with their interest rate guidance. Of course, markets tend to frown on Central Bankers revealed as less than omniscient…

Loking at the chart above, one wonders if The Fed tries QE in 2016 first, and/or increases its war on cash before negative rates are forced upon Americans.

Full story here
Tyler Durden
ZeroHedges' Tyler Durden is the hero of Fight Club, the 1999 movie based on Chuck Palahniuk's novel that reflected Chuck's experience in the Cacophony Society Quote: "Goddamn it, an entire generation pumping gas, waiting tables, slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off." --> see more about Tyler on snbchf
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