This Is Not What A Low-Volatility Environment Looks Like

Tyler Durden's picture

VIX, the market's measure of forward-looking expectations of equity volatility has been hovering at decade lows (and even after yesterday's spike has plunged back once again today). MOVE, the bond market's measure of forward-looking uncertainty is at all-time record lows. As one infamous rates trader said recently, maybe it's early Alzheimers, but we are fairly certain that that last time Implied Volatility was scraping the lows, we did not experience:

  1. Gold moving almost $250 or over 15% in less than 48 hours;
  2. A G-3 currency moving over 25% in less than six months;
  3. A G-3 bond yield moving by 35% in two months;
  4. The Dow leaping by almost 20% in five months;
  5. A joint monetary policy as impactful as Volker or the Paris accords.

We can't help but agree.

To be clear, this is neither good nor bad, bullish nor bearish, reasonable nor irrational; but by any means this is not how an all-time-low volatility environment is supposed to look.

All is well...

VIX - equity market volatility expectations near all-time lows...

 

MOVE - bond market volatility expectations at all-time lows...

 

BUT...

Gold moving almost $250 or over 15% in less than 48 hours;

 

A G-3 currency moving over 25% in less than six months;

 

A G-3 bond yield moving (up and down) by 25-35% in two months;

 

The Dow leaping by almost 20% in five months;

 

A joint monetary policy as impactful as Volker or the Paris accords.

 

As the 'infamous rates trader' sucinctly summarized:

In a nutshell, in a deeply intertwined world, I simply cannot buy into the notion that Japan can engage in a massively disruptive Monetary Policy without a ripple washing ashore in the US.  Japan cannot absorb 100 Trillion Yen domestically, it must leak out to its trading partners.

 

This is not a Helicopter drop of money, it is Star Wars about to engage its disruptor on the currency.

 

While this policy may be long overdue, the ultimate ramifications are completely unclear to me.