Nomura McElligott GET WONKY

GET WONKY Charlie McElligott · Nomura · Managing Director, Cross-Asset Strategy Fri 14 Aug 2026, 12:11pm ET

It's pretty wild... Dovish NFP, CPI and PPI prints, while Oil stays relatively neutered despite the insane quagmire of nothingness in Iran / Strait.... Yet Bonds / Duration remain with no friends, unable to cease this Bear-Steepening... while Rate Vol is "low cares" regardless, with Data "gone" and Warsh not talking... So the market drifts further in the path of least resistance.

It's the same story of apathy and supply deluge I wrote about the other day: AI's financing needs (Total Corporate debt supply is running ~+61% YoY, and AI/Hyperscaler/Datacenter issuance (IG + Loans) is now tracking at ~12x the annual average of the prior 2015-2024 period and 2x's 2025 FY already at $269B YTD), and are structurally re-Steepening the curve as it tests bond-market absorption capacity (FWIW, CTA Trend G10 Bond aggregate "Short" signal $notional position at 12%ile, STIRS at 10%ile since 2010).

"Who Buys the Bonds?" is morphing into "Crowding-Out Risk" (Credit and "yieldier" stuff continues to challenge Treasury looking for "Buyers of Duration")... Where the supply deluge threatens wider Credit spreads and crowds out Duration buyers, feeding a bear-steepening in the Treasury curve and a broader "loss of control" fear on Yields (aggravated by ~$136B MTD IG supply), which I think too is conceptually behind this "Gold as the pressure release valve" bid (CTA model flipped Short to now Long over the past 1w)...

But yet again, like the Bernie Sanders meme... "I am once again asking you to allow me to talk about Equities Vol"

Over the past week+, the "AI trade" is yet-again reaccelerating just as the AI Tech leverage flush 1.0 has seemingly culminated — and the same single-name MegaCap Tech Vol destruction which has in some ways locally "capped" the index is quietly handing Leveraged funds the room to Re-Gross, which alongside with another structural flow I'll unpack below, sets-up real potential for a second-wave of reflexive "Spot Up, Vol Up" chase.

Kospi is now back in a bull market and +25% off the end July lows... and this sentiment / risk-appetite shift is displaying itself in the US too, where our "AI Enablers vs Hyperscalers" Long / Short basket is +12% since its August 3rd local low... as frankly, the "AI Capex Trickle-Down" continues to show up in the insanely huge Earning prints of the proxy "Bottleneck" plays...

And honestly, it's not "just" the AI trade being re-risked over the past week, as my old favorite "Semis- Energy Barbell" too is +5% over the 5 days (vs SPX +1.2%), and most hilariously, on the "smooth sailing" that is a 39.5 Sharpe over that 5d period.

Two concentric forces have conspired to crush said MegaCap Tech Single-Name Vols to really "kick-off" this whole thing in such an enhanced fashion over the last few weeks, where the related flows have too then acted to further compress Spot Equities Index now into what looks like a "Coiled-Spring"... particularly because the same mechanism which has helped to pin Spot and crunch Single-Name Vol lower then risks flipping violently into an "Upside Chase" "Spot Up, Vol Up" if the market rallies further from here.

The first flow has been hyper-socialized at this point: The high-profile AI Tech portfolio unwind & clearance of excess Leverage, and the follow-on "Unwind of the Unwind" — i.e. The Selling out-of the legacy Call Options positions which had been originally bought to lever up the original book — which has then acted to smash single-name Vols in those names over the past few weeks as they hit the market, with some Single-Name Vols down 20 to 40 points.

But the second interplaying flow is the one that's been most under-the-radar: Prolific Asian Retail demand in the Exotic space for "Worst-Of" Autocallable Notes with a "Memory Coupon" and "Knock-In" Barriers, where the structure is effectively a high-yielding Coupon machine which DUMPS short-dated Vol (and that's the real change here, where the various "bells and whistles" of the structures to trigger early termination the product churn into shorter-and-shorter periods), typically concentrated into what's been a three name…