US Bond Volatility Is Lowest Since 2022: 3-Minute MLIV

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00:00How quickly can things swing back when everyone is short dollar right now.

00:06Well that is something that FX traders always have to take into account right.

00:11Positioning can mean that the moves don't go the way that you would normally

00:14expect them to be. And you know there are various things that could get us

00:19into a situation where the dollar maybe starts to behave more like a haven

00:23again. And we see more cash flowing back into the U.S. or in a very good

00:27news situation for the U.S. as well. Likewise that could lift the dollar.

00:32However you know most of the people that we speak to seem to have this

00:36long term bearish dollar position at the moment perspective.

00:40If you add into that the idea that the Fed might be cutting interest rates

00:43later in the year as well. That is another sort of drag on the U.S.

00:46currency. And in general if you look across markets measures of implied

00:50volatility are extremely low. So nobody is really pricing in that risk of an

00:54immediate or very sharp bounce back. Which again pretty perhaps only magnifies

00:59the risk of it actually happening. Paul we get U.S. CPI next Tuesday.

01:06Do you think we're going to get any clarity on the tariff pass through to CPI.

01:09Or are we going to have to be waiting until Q1 next year. That's the thing.

01:16I mean some of the policy makers are telling us it might take a whole year for

01:19that to pass through into prices. And it might actually you know kind

01:22of be in a very much more managed way. You might have this idea or this

01:25scenario where there's some sort of agreement between the U.S. vendors and

01:28the suppliers in the rest of the world that they'll sort of share those

01:32costs somehow. And limit the pass through to consumers or trick it through

01:35over a steady period of time. And so the idea that is going to show up in CPI data

01:40at the moment is a difficult one. Particularly when we don't really know

01:45what exactly the final future tariffs are going to look like. And I think

01:48that you're still hearing that quite a lot from the Fed policymakers.

01:50It feels like the possibility of the Fed moving this month is pretty

01:54pretty remote. But the market is still priced for two cuts this year.

01:57September and then another one. And a lot of the policymakers are still

02:02talking to us about the idea that that could be where we get it. So a lot will

02:06depend on that part of CPI and on the outlet for company earnings in the

02:09labor market. But it's hard to read too much from the immediate data that

02:14we're getting free when there's still so much fog out there.

02:17Paul, Jamie Dimon says the Fed could hike given the inflation risks.

02:25It's possible. I mean that's a recipe for getting fired from the U.S.

02:31government at the very least right. But I mean there is inflationary risk

02:38but then there's tariff risk. There's a lot of risks out there.

02:41It feels like you know the Fed is pretty committed to the idea that

02:44interest rates are going to come lower over time and that it's not so

02:46worried about it. Yes you have the comments from Trump kind of breathing

02:50down their neck as well. If you look at what we see in the bonds market you

02:53know in play volatility the move index is down at the lowest since 2022.

02:57So markets aren't panicking about the idea that the Fed is going to do

03:01anything that upsets the apple cart any time soon. It's more the supply

03:04dynamics which have been wobbling around the back end of the yield

03:06curve that we need to worry about and keep our attention on.

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