- Divergences return. The Fed signals it is all but certain to raise rates in December. At the same time, the ECB signals its growing concerns on downside risks and argues for the need to "re-examine" its degree of policy accommodation. “Divergence” is back. With the surprisingly strong October U.S. payroll report putting a Fed hike in December even more firmly in market expectations and weakening inflation and growth in Europe putting ECB expansion of accommodation on track for December, the strengthening dollar reflects the return of “divergences” in central bank policy as a dominant investment theme.
- Some interesting swaps. Dramatic moves in what might be viewed as an arcane area of the bond market represent an important signal of change in the underlying market structure. The post-crisis-era shifts continue to reverberate in the markets with the latest iteration in the multi-trillion dollar interest rate derivative market. The upshot for retail bond investors is the illustration of the increasing costs for bond market liquidity.