Frequently Used Terms Specific To The Market Chronicles
10-2 Spread (Yield Curve): The difference between the yields of the 10-year Treasury bond and the 2-year Treasury bond. A steepening curve (increasing spread) often signals higher future interest rates or economic uncertainty.
10-Year Yield - The interest rate paid on a 10-year U.S. Treasury bond, a key benchmark for economic and market sentiment.
30-Year Yield - The interest rate on a 30-year U.S. Treasury bond, reflecting long-term economic and inflation expectations.
61.8% retracement - A key Fibonacci retracement level used in technical analysis, suggesting a potential reversal or continuation point after a price correction.
AXW contracts - Contracts used to measure equity financing costs relative to the Secured Overnight Financing Rate (SOFR), indicating the cost of funding equity positions.
Balance Sheet Reduction: A process where the Federal Reserve reduces its holdings of Treasury securities and other assets to tighten monetary policy and reduce market liquidity.
Basis Points (bps): A unit of measure equal to one-hundredth of a percentage point (0.01%). It is commonly used to express changes in interest rates or bond yields. For example, a 50-basis-point increase means a rise of 0.50%.
Bid-to-Cover Ratio - A metric used in treasury auctions to measure demand. It is the ratio of the total bids received to the amount of securities sold. A higher ratio indicates stronger demand.
Bloomberg 500: A stock market index that tracks the performance of 500 large publicly traded companies. It provides a snapshot of overall market activity and is often used as a benchmark to gauge how the stock market is performing.
BOJ (Bank of Japan): Japan’s central bank, which sets monetary policy, including interest rates and currency interventions. Its decisions impact global markets, particularly in Asia. For instance, delaying rate hikes while the yen weakens could signal concerns over economic growth rather than inflation.
Bollinger Bands: A charting tool used in technical analysis that consists of a moving average and two standard deviations (upper and lower bands) from that average. When prices touch the lower band, it can indicate oversold conditions.
Breadth - A market indicator showing the number of advancing stocks versus declining stocks, used to gauge the overall strength or weakness of the market.
Breakeven Rate - The difference between the yield of a nominal bond (e.g., Treasury) and an inflation-indexed bond of the same maturity. It reflects the market’s inflation expectations over the bond’s term.
British 30-year gilts - Long-term U.K. government bonds with a 30-year maturity, often used as a benchmark for interest rates and economic health.
BTIC (Basis Trade at Index Close) - Futures contracts designed to align with the closing price of the underlying equity index.
Bull Flag: A chart pattern that signals a continuation of an upward price trend. It consists of a sharp price increase (the flagpole), followed by a period of consolidation with minor price fluctuations (the flag). Breaking out of this pattern typically indicates further gains.
CTAs (Commodity Trading Advisors): Professional fund managers who specialize in futures and derivatives trading, often using systematic strategies like trend-following. Their activity can influence market trends, particularly in commodities and index futures.
Debt Ceiling: The maximum amount of money the U.S. government is authorized to borrow to meet its obligations. Concerns about reaching the debt ceiling can disrupt financial markets.
Direct Participation - The portion of securities in an auction purchased directly by investors (e.g., individuals, investment firms). Low direct participation may indicate less interest from these buyers.
Dollar Index (DXY): A measure of the U.S. dollar’s strength relative to a basket of major foreign currencies (e.g., euro, yen, pound). A rising dollar index indicates a stronger dollar, which can pressure international trade and foreign investments.
Double Bottom - A chart pattern indicating a potential trend reversal, formed when a security hits a low price twice before rebounding.
EEM/ACWX: EEM is an ETF that tracks emerging market equities, while ACWX tracks global equities excluding U.S. stocks. Their performance is used as a proxy for international economic trends and investor sentiment toward foreign markets.
Emerging Markets (EM): Countries with economies that are in the early stages of industrialization and growth, such as India or Brazil. Investing in EM can offer high returns but comes with higher risks due to factors like political instability and currency volatility.
Equity financing costs - The expenses associated with borrowing funds to trade equities, often influenced by interest rates and market conditions.
Fed Funds Rate - The interest rate at which banks lend reserve balances to other banks overnight. It’s set by the Federal Reserve and is a key tool for monetary policy.
Gamma Exposure: In options trading, gamma measures how much the delta (sensitivity of an option’s price to the underlying asset) changes for every point move in the asset’s price. Gamma exposure reflects how traders adjust their positions and can influence market volatility.
Gamma Squeeze: A rapid price movement caused by market makers adjusting their positions in response to increased options trading. When negative gamma is involved, it can amplify volatility as market makers buy when prices rise and sell when they fall.
Gap fill - The movement of a stock or index to “fill” a price gap that occurred on a chart, typically due to significant price movement during non-trading hours.
GDP Growth (Real and Nominal): Real GDP growth measures economic expansion adjusted for inflation, while nominal GDP growth includes current prices. Strong GDP growth suggests a robust economy but can also lead to higher interest rates.
HYG: An exchange-traded fund (ETF) representing high-yield (or “junk”) corporate bonds. Its performance indicates investor sentiment toward riskier corporate debt. Declines in HYG suggest reduced risk appetite or stress in the credit markets.
Implied volatility (IV) - The market’s forecast of a stock’s or index’s future volatility, derived from option prices.
Indirect Participation - The portion of securities purchased by intermediaries such as foreign central banks or large institutions acting on behalf of others. High indirect participation often reflects strong foreign demand.
Indirect Participation - The portion of securities purchased by intermediaries such as foreign central banks or large institutions acting on behalf of others. High indirect participation often reflects strong foreign demand.
Inflation Swaps: Financial derivatives that allow investors to hedge or speculate on future inflation levels. They reflect market expectations for inflation over a specified period.
Interest Rate Hiking Cycle: A phase where central banks systematically raise interest rates to control inflation or cool down an overheating economy. Higher interest rates make borrowing costlier, affecting sectors like housing and slowing economic growth.
Inverse Head-and-Shoulders - A bullish chart pattern signaling a potential upward trend, identified by a central low point flanked by two higher lows.
Italian 10-year spreads against German bunds - The difference in yields between Italian 10-year government bonds and German 10-year government bonds, reflecting relative credit risk or economic stability.
iTraxx Crossover Index - A European credit default swap index tracking the creditworthiness of high-yield (non-investment-grade) corporate bonds.
IWM (Russell 2000 ETF) - An exchange-traded fund tracking the Russell 2000 index, which represents small-cap U.S. stocks.
Japanese interest rate swaps - Financial contracts in Japan where two parties exchange fixed interest rate payments for floating-rate payments, often reflecting market expectations of rate changes.
JOLTS Report (Job Openings and Labor Turnover Survey) - A monthly report by the U.S. Bureau of Labor Statistics that provides data on job openings, hires, and separations, offering insights into the labor market’s health.
JOLTS Report (Job Openings and Labor Turnover Survey) - A monthly report by the U.S. Bureau of Labor Statistics that provides data on job openings, hires, and separations, offering insights into the labor market’s health.
Key Support Levels: Technical price points where an asset typically sees strong buying interest, preventing it from falling further. If the asset breaks below a key support level, it may experience accelerated selling pressure.
KRE (Regional Bank Index) - An exchange-traded fund representing the performance of U.S. regional banks, which can be sensitive to interest rates and credit conditions.
Leverage - The use of borrowed capital to amplify potential investment returns, increasing exposure and risk.
Liquidity: The ease with which assets can be bought or sold in the market without causing significant price changes. Tight liquidity indicates reduced trading activity or access to capital.
Market Breadth: Measures the ratio of advancing stocks (those gaining value) to declining stocks (those losing value) within a market or exchange. A positive breadth (more advancers than decliners) suggests bullish sentiment, while negative breadth (more decliners than advancers) indicates bearish sentiment.
McClellan Oscillator (NYMO): A technical indicator used to measure market breadth. It calculates the difference between advancing and declining stocks and identifies overbought or oversold conditions.
Negative Gamma: In options trading, negative gamma refers to a condition where market makers must continually adjust their hedges in the same direction as the market moves, leading to amplified volatility. It occurs when traders sell options or engage in strategies that exacerbate price swings.
Neutral Rate: The theoretical interest rate at which the economy operates at full capacity without accelerating inflation. It is an important benchmark for setting long-term interest rate expectations.
NFIB “Jobs Hard to Fill” Metric - A survey from the National Federation of Independent Business that measures the percentage of small business owners reporting difficulty finding qualified workers.
NFIB “Jobs Hard to Fill” Metric - A survey from the National Federation of Independent Business that measures the percentage of small business owners reporting difficulty finding qualified workers.
NYHL (New Highs-Lows Index): A market breadth indicator comparing the number of stocks hitting new 52-week highs to those hitting new lows. A rising NYHL indicates market strength, while a declining NYHL suggests weakness.
OpEx (Options Expiration): The final day on which options contracts can be exercised or settled. It often leads to increased market volatility as traders close or adjust their positions.
PCE (Personal Consumption Expenditures): A key measure of inflation that tracks changes in the prices of goods and services consumed by households. It is closely monitored by the Federal Reserve for policy decisions.
Powell Indicator - A metric that compares short-term interest rates (e.g., 3-month bills) with future interest rates (e.g., 3-month bills 18 months forward). It provides insights into market expectations for Federal Reserve policy changes.
Primary Dealer Holdings - The securities held by primary dealers—financial institutions authorized to trade government securities with the Federal Reserve. These holdings can impact market liquidity and financing costs.
QYLD ETF: An exchange-traded fund that invests in the Nasdaq-100 and generates income by selling covered call options. It can influence market dynamics but is usually a stabilizing force.
Real Yield - The yield on a bond adjusted for inflation. It represents the investor’s return in terms of purchasing power.
Realized Volatility: Unlike implied volatility (which predicts future movements), realized volatility is the actual, historical fluctuation of an asset’s price over a specific period. It’s calculated using past price data and shows how volatile an asset has been.
Repo Activity - Short-term borrowing where securities are sold with an agreement to repurchase them, commonly used for liquidity management.
Repo Facility: A Federal Reserve tool that provides short-term funding to banks by exchanging cash for collateral (such as Treasury securities). It stabilizes short-term interest rates and ensures liquidity in financial markets.
Retracement: A temporary reversal in the direction of a stock or market within a larger trend. Traders often use retracement levels to identify opportunities to buy or sell.
Reverse Repo Facility - A tool used by the Federal Reserve to manage short-term interest rates and provide liquidity to the financial system by borrowing money from institutions overnight in exchange for securities.
Risk Repricing - Adjustments in market risk assessments, impacting asset valuations, interest rates, or required returns.
RSP (Equal-Weight S&P 500 ETF) - An exchange-traded fund that gives equal weight to all 500 stocks in the S&P 500 index, instead of weighting them by market capitalization.
S&P 500 Negative Gamma Territory: A condition in which the S&P 500 is in a price range where market makers have to adjust their hedging positions more aggressively, increasing market volatility. This can cause rapid and unpredictable price swings.
Skew - The difference in implied volatility between out-of-the-money put options and call options, reflecting market expectations of directional risk.
SOFR (Secured Overnight Financing Rate) - A benchmark interest rate for U.S. dollar-denominated loans and derivatives, based on overnight repurchase agreement transactions.
Term Premium: The extra yield investors demand for holding long-term bonds instead of shorter-term securities. It compensates for risks such as inflation and interest rate changes over time.
Treasury Auction - A process where the U.S. government issues new Treasury securities, setting yields based on investor demand.
Triple top - A bearish chart pattern where the price reaches the same high level three times, indicating strong resistance and a potential reversal to the downside.
Two-Year Swap Rate - The fixed interest rate exchanged for a floating rate in a two-year interest rate swap. This is a key benchmark for borrowing costs and interest rate expectations.
VIX (Volatility Index): Known as the “fear index,” the VIX measures the market’s expectations for future volatility based on options trading. A rising VIX indicates increased uncertainty or fear among investors, while a declining VIX suggests a calmer, more stable market outlook.
When Issued Yield - The yield on a bond or note that is quoted before the actual issuance of the security. It represents the market’s expectations for the yield at auction.
Widening spreads - An increase in the difference between yields of two different bonds or securities, often indicating greater perceived risk or economic stress.
Yield Curve Normalization - A return to typical spreads between short- and long-term Treasury yields, signaling economic stabilization.
Yield curve steepening - A situation where the difference between long-term and short-term interest rates increases, indicating higher long-term rates.
Zero Gamma Level: The point at which gamma exposure is neutral, meaning that market makers don’t need to adjust their positions as much, potentially reducing market volatility. When prices are far from this level, volatility tends to increase.
Zero-DTE (Zero Days to Expiration): A type of option contract that expires the same day it is traded. These contracts are highly speculative and contribute to sharp intraday price movements