The CBOE Volatility Index (VIX) and the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX), benchmarks of volatility for the U.S. equity and Treasury markets, have had some interesting twists and turns this week after another decline in the Shanghai stock market pushed global equities lower and the price of crude oil dipped below $30 a barrel. The TYVIX Index has been heading up since December 24, 2015, but still shows no clear trend from a longer-run perspective. The VIX Index, on the other hand, is solidly anchored in a higher range.
Figure 1. Comparative paths VIX and TTVIX indexes
Figure 2. Update of weekly performance of volatility indexes
While many economists are sounding alarms and predicting a bleak year of 2016 with heightened equity volatility, VIX futures say otherwise. VIX futures prices are in backwardation, which always means the market expects volatility to subside. In contrast, TYVIX futures are in mild contango, which has greater implications for a volatility premium than for expectations of higher volatility.
Figure 3. VIX futures in backwardation; TYVIX futures in contango