Central banks made the headlines this week. On Wednesday, Federal Reserve Chair Janet Yellen affirmed that the U.S. appears ready for the first of a sequence of federal fund rate increases, while on Thursday, European Central Bank President Mario Draghi announced the ECB would ramp up quantitative easing. The divergence between transatlantic monetary policies has widened the spread between VSTOXX and VIX and increased the volatility of the Euro.
Figure 1. VSTOXX vs. VIX indexes
Figure 2. Weekly update of volatility indexes
A View Into the Future
The forward volatility of VIX is in definite contango, while it’s almost flat in both the TYVIX and JYVIX. The forward volatility of EUVIX remains in backwardation.
Figure 3. Forward volatility – a comparison