VIX up as GeoPolitical Risk rises. Dollar jumps on the invasion, but eases today, Treasury yields down due to safe haven effects. Anticipated interest rate increases moderate.
Category Archives: financial markets
Sanctions on Russia, International vs. Foreign Exchange Reserves, and Capital Controls
Interesting quote from 2020 IMF Article IV, Annex III: External Sector Assessment (distributed February 2021):
Russian Asset Prices Today
Ruble down about 7%, sovereign bond yields up 4.7 percentage points in 6 days, stock market down 1/3 in one day.
Russia EMP Watch
One way to assess external financial stress is to look at exchange market pressure (EMP) – the change in the exchange rate, change in reserves, and change in interest rates, possibly weighted by inverse of standard deviations. or otherwise (see e.g., Patnaik, et al. (2017) for several different versions).
Risk and Policy Uncertainty Measures – Gulf War I and Today
Looking back to one of the last major ground conflicts. In August 1990, Saddam Hussein’s forces invaded Kuwait. Here’re some risk and uncertainty indicators — some developed afterwards — for that period.
Risk and Uncertainty before the Open
VIX jumped on Friday; the Economic Policy Uncertainty index rose on Saturday.
Interest Rate Forecasts – Survey of Professional Forecasters February Survey
Even before the Thursday’s CPI release, forecasters had upped their short term rate forecasts, along with long term.
Market Expectations and the CPI Release
Nominal and real yields rise, as do inflation breakevens, while yield curve flattens.
Bitcoin and Different Types of Uncertainty/Risk
What matters (as we ponder Russian actions in Ukraine (e.g., invasion). Will elevated geopolitical risk matter, and if so, how much?
Inflation Breakeven, TIPS and Term Spreads
Given the indications of tightening in the Fed’s statement today – both on rates and tapering – it’s surprising how little inflation breakeven moved. On the other hand, 5 year TIPS jumped 13 bps.