With VXX touching a record low yesterday, and the equity volatility having now utterly disconnected [4]from other asset classes...
[5]
... many have suggested that as a result of central bank suppression of risk, vol has become nothing more than a coiled spring with central banks around the global doing everything in their power to keep it in check until occasionally they lose control and vol explodes, leading to sheer market panic.
Two charts from Citi confirm just that. When looking at intraday trading ranges in the Treasury and FX market, Citi has presented what may be the best summary of the bifurcation between the "old" normal-market, and "new" centrally-planned and increasingly illiquid "market" as follows:
- back then: regular, frequent corrections
- now: fewer, bigger corrections
Visually, for bonds:
and FX:
These are just two markets where central banks have occasionally lost control over, and where volatility, as shown in the top chart, is currently elevated. Equities, the favorite asset class of central planners everywhere, continue to drift without a worry in a artificial world of their own.
What will the "bifurcation" look for stocks when inevitably, the central planners finally also lose control of their favorite asset class?
