Between China’s softened economic landing and a possible Federal Reserve rate hike next week when Fed policymakers meet, volatility has been lifted by the Sturm and Drang of almost daily economic announcements from Asia, Europe and the U.S.
Volatility is now reverting to more normal levels. But what is normal? As seen in Figure 1, the new normal for the CBOE VIX Index is now closer to 25, which is 40 percent higher than at the beginning of 2015. EUVIX is up 19 percent, and TYVIX up 4 percent. On the other hand, BPVIX is practically at the same level as it was in January and so is JYVIX, despite its recent surge.
Figure 1. Comparative Volatility Levels: TYVIX, VIX, EUVIX, BPVIX and JYVIX
Term Structure of Futures on VIX and TYVIX
The term structure of futures on VIX and TYVIX conveys that there is greater tension in the equity market than in the bond market. The term structure of VIX futures was slower to rise, but now is high all the way through the May 2016 expiration, even with the futures in backwardation. Futures on TYVIX (ticker symbol: VXTY) came down from their level in July and are in contango.
Figure 2: Term Structure of VIX and TYVIX Futures