Tracy Alloway at Bloomberg: “Two of the largest Wall Street banks are trying to measure the market impact of Donald Trump’s tweets.
Analysts at JPMorgan Chase & Co. have created an index to quantify what they say are the growing effects on U.S. bond yields. Citigroup Inc.’s foreign exchange team, meanwhile, report that these micro-blogging missives are also becoming “increasingly relevant” to foreign-exchange moves.
JPMorgan’s “Volfefe Index,” named after Trump’s mysterious covfefe tweet from May 2017, suggests that the president’s electronic musings are having a statistically significant impact on Treasury yields. The number of market-moving Trump tweets has ballooned in the past month, with those including words such as “China,” “billion,” “products,” “Democrats” and “great” most likely to affect prices, the analysts found….
JPMorgan’s analysis looked at Treasury yields in the five minutes after a Trump tweet, and the index shows the rolling one-month probability that each missive is market-moving.
They found that the Volfefe Index can account for a “measurable fraction” of moves in implied volatility, seen in interest rate derivatives known as swaptions. That’s particularly apparent at the shorter end of the curve, with two- and five-year rates more impacted than 10-year securities.
Meanwhile, Citi’s work shows that the president’s tweets are generally followed by a stretch of higher volatility across global currency markets. And there’s little sign traders are growing numb to these messages….(More)”