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Vol Curve Mangling Continues As March Debt Ceiling "Drop Dead" Day Looms

January 4, 2013 - 3:26pm
We explicitly noted that the purchase of vol steepeners across the debt-ceiling deadlines was the short-term trade as soon as the ATRA deal was approved. In the brief period since, the VIX term-structure has smashed from its flattest (most inverted) in 2 months to its steepest now in 5 months as hedgers roll out to March and beyond. Of course, all algos know is that they can lever VXX (and other synthetics) in the short-term to ramp equities higher - and sure enough the S&P 500 just hit highs above the highest close since December 2007.   Spot and futures curve steepening...   Short-term...   Medium-term...

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