Shorting volatility has been a popular trade, which can sometimes go wrong as we have seen in the past when speculative investors rushed to cover their shorts. But today the lessons of the past seem to be being ignored big time. The US equity market volatility index, the VIX, is back below 12. But the markets have turned against other volatility indices too. Vols are crushed everywhere. Bond volatility is falling as credit default swaps for US corporates, be it investment grade or high yield, are all tumbling to record lows. That can also be seen from very low corporate bond spreads. But currency volatility is going down the same route. The JP Morgan FX volatility index is also down to record low levels, so is its version for emerging market FX volatility. You might perhaps think otherwise when looking at how the BRL or ZAR have traded this year. Finally, some commodities are also seeing falling volatility, e.g. gold.
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