Slightly Less Similar

Pretty much coinciding with our June 2nd observation that the returns from most investment options were a touch too correlated, the well-subscribed curve steepener went upside down*. Betting the long schatz/short bund spread (naive margin requirement equalizing ratio of 4:1) had netted, from early March through the end of May, 496 basis points. Since then, it has given back about 30% of those gains.

The relatively good news here is that this reversal appears to have not resulted in any contagion to other markets - implying that deleveraging and cascading margin calls and the like might no longer be as serious a risk as it was last autumn.

With the usual caveats about doing one's own homework, we suspect that the British pound (pictured on the left) might be the next to abandon the bull cartel. The, in the end inconsequential, 9-cent shakedown of a couple of weeks ago looked ominous to this farmer.

*As if our own, typically auto-contrarian, timing were not sufficient indication of where the probabilities lay, what are we to make of Bloomberg picking up on the theme, ummm, yesterday?

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