For the first time since August 2008, high-yield bond 'VIX' is greater than US equity 'VIX'. The 1-month implied vol of HYG has surged over 21 - its highest since October 2011. The last time credit's volatility surged above stocks like this, VIX quickly accelerated well beyond 40, pricing in the increased business risk. Furthemore, just as we saw in July/August, the cost of protecting equity markets is beginning to accelerate up to the surging cost of protecting credit markets. Both credit levels and risk suggest VIX is going notably higher.
Deja vu all over again from August (note this is High yield bond option-adjusted spread as opposed to CDX as to avoid the roll dislocation). Equity markets ignored credit's risk just as they did in July and August... until they snapped...
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Furthermore,For the first time since 2008, credit volatility is above equity vol.
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The last time this happened, VIX rapidly exploded as credit market volatility increased business risk.
Charts: Bloomberg
