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Understanding High Volatility Rate Cuts and Their Impact on Yield and Equity Markets

This analysis explores the effects of historically high volatility rate cuts in 1998, 2001, and 2007, emphasizing the flight to quality and its impact on front-end pressures. It discusses the implications of long-term inflation, the resulting higher long rates, and how these factors contribute to lower yields and a steeper yield curve. Furthermore, it outlines strategies for navigating equity volatility, advising on bear and bull market positions, and the significance of capital protection versus yield optimization for pricing and timing in investment decisions.

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Understanding High Volatility Rate Cuts and Their Impact on Yield and Equity Markets

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Presentation Transcript

  1. High Volatility Rate cuts (‘98, ‘01, ‘07) Flight to quality (pressure on front) Long term inflation (higher long rates) Lower Yields & Steeper Curve

  2. Sell Vol EQ Bear Equity Volatility EQ Bull Buy Vol No Cap Protect Cap Protect Yield Good for Pricing  Good for Timing

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