The ‘Volfefe Index’, named after Trump’s mysterious ‘covfefe’ tweet, suggests that the US President’s tweets are having a statistically significant impact on Treasury yields.
Monday 09, September 2019
Analysts at JPMorgan Chase & Co. have created an index to gauge the impact of President Donald Trump’s tweets on US interest rates, which they say is on the rise reported Bloomberg.
The number of market-moving Trump tweets has ballooned in the past month, with those including words such as China, billion as well as products, democrats and great, most likely to affect prices.
JP Morgan Chase & Co analysts led by Josh Younger and Munier Salem, said, “Trade and monetary policy have become an increasing focus for the executive branch and everything from casual sentiments to seemingly formal policy intentions have been disseminated, globally and instantaneously, via this carefully scrutinised social media platform.”
According to JPMorgan’s analysis, the president has averaged roughly 10 tweets a day since the start of 2016, with 10,000 tweets occurring after his inauguration in 2017.
Trump’s Twitter activity reached a low of five tweets per day heading into his official inauguration but has picked up substantially since late 2018—with his highest number of tweets in the past four years occurring in recent months.
“A broad swath of assets from single-name stocks to macro products have found their price dynamics increasingly beholden to a handful of tweets from the commander in chief,” says JP Morgan analysts.
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 is particularly apparent at the shorter end of the curve, with two- and five-year rates more impacted than 10-year securities.
Analysts at Bank of America Merrill Lynch also published a note last week concluding that days where President Trump tweets relatively frequently tend to see negative returns of nine basis points on average.