A fresh session low for the S&P 500…

1,823.06 -54.64 (-2.91%)

- at pixel. DJIA off by a similar margin. What to say? Let’s fall back on charts…

That’s the yield on 2 year US Treasuries, according to Trade Web data. Remember we were waiting for the Fed to hike, right?

Here’s the progress so far this session…

Switching to equities it seems the “fear” rating is suddenly back at 2011 levels. Here’s the Vix:

Oh, and the Dow really has kissed goodbye to 16k, at least for now…

What’s more, there’s been a serious spike in volumes, seen firsts across the major derivatives exchanges. Here’s a snap comment from Andrew Wilkinson at Interactive Brokers:

It could be a record day for traded futures volumes at the CME. While the earlier market disruption appears to have been driven by a surge in demand for treasury note futures, sufficient to drive almost 30bps off the 10-year yield, Eurodollar volumes also surged. According to exchange data, both December 2015 and December 2016 3-month interest rate futures were amongst the handful of contracts with established positions in excess of 1-million contracts ahead of the session. Daily volume in each of these contracts is the highest across the entire contract table and by noon in New York, trading in each had attracted in excess of 1-million contracts. To put that in context, before today, average 15-day volume was around 490,000 contracts. Futures prices are sharply higher as a result, with money traders perhaps lowering the odds of an imminent Fed tightening. The fact that daily volume is likely to exceed cumulative open interest tells a significant tale. Seasoned traders know that such events are rare and signal either, the end of an old trend or the start of a new one. There is a lot of money flowing into a significant fundamental change in investors’ expectations. In the case of the December 2015 Eurodollar contract, implied yields are at fresh contract lows. For the December 2016 contract, the contract would need to head 25-ticks higher in price terms to reach a contract high (and low for implied yields). The turnaround in sentiment in the bond market and monetary policy expectations is unprecedented. Few bet that yields would be falling at any point throughout 2014.

And here’s some quick commentary from Christian Schwarz and team at Credit Suisse in London…

Risk-free rates plunged on 15 October 2014. Intraday, 10y US, UK and German rates have fallen by 15bp, 15bp and 8bp, respectively. Equities across Europe were down more than 3% and even peripheral sovereigns widened aggressively, led by GGBs which sold off more than 77bp…

The breadth of the sell-off, however, highlights that the credit market continues to trade under a new, darker regime. Since the ECB June meeting lower yields do not necessarily mean a higher likelihood of central bank policy easing and a resulting hunt for yield in the credit markets anymore. In the recent past, markets have become more concerned about global and especially European growth and expressed this through higher real rates, falling equity prices (and higher equity implied vol) and wider credit spreads.

PS — Our Clairvoyant of the Week award most go to reader Blackswan, writing yesterday on the Strategists table in the Long Room…