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A New Volatility Regime of Generally Higher Values than a Year Ago With the Chinese stock market on holiday (the Shanghai and Hong Kong markets were closed Thursday and Friday in remembrance of the 70th anniversary of World War II), volatility has stabilized.  However, amid persisting uncertainty about the world economy, it is a new regime. Values are significantly higher than a year ago, especially for equities.

Figure 1. Weekly Update on Volatility LevelsbbFig1-9415

VIX Futures in Backwardation

Stock market volatility pushed the TYVIX Index into a short-lived backwardation. But currently, the term structure of Treasury volatility has returned to almost flat. In contrast, the term structure of VIX futures continues to flirt with backwardation and is in a hybrid state between backwardation and contango. Figure 2: Term Structure of VIX Futures versus Futures on TYVIXbbFig2-9415What About the Fed?

No definite “hike date” for the Federal Fund Target rate has emerged not after the Federal Reserve’s annual retreat at Jackson Hole this week, and not after today’s U.S. August unemployment report. In past history, volatility has not tended to increase when the Federal Reserve implemented a gradual, predictable schedule of rate increases.

Post written by Catherine Shalen, CBOE Research