Falling VIX index – the catch!


The Chicago Board Option Exchange’s VIX index, which measures the implied volatility of the S&P 500.

At the moment the CBOE Volatility Index is lower by 4%, this drop puts the so-called fear gauge on track to tie its all-time record for consecutive down days.

This falls onto the below analysis from Societe Generale published on Bloomberg. 

US equity volatility follows the rate trend with a 2.5 - year lag
US equity volatility follows the rate trend with a 2.5 – year lag

The chart, according to Cassot, “shows how sensitive the equity volatility regime is to large changes in rates trends.” The “taper tantrum” of 2013, which occurred when the Federal Reserve roiled bond markets by suggesting that it might begin to dial down its bond purchases before the year was out, marked a likely turning point in the volatility cycle that is only just starting to materialize.

 This development could spell the end of one of the most consistently profitable trades of the quantitative-easing era, or at the very least, severely dent its attractiveness.

“The recent turbulence in the equity markets and the rise of volatility could signal the start of a more serious switch in the volatility regime,” asserted Cassot.

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