TYVIX Weekly Review: Nothing Like a Yuan Devaluation to Invigorate Volatility

After last week’s doldrums, the Chinese government’s surprise devaluation of the yuan breathed life into CBOE’s VIX Suite: VIX, TYVIX, EUVIX, BPVIX and JYVIX. Volatilities fluctuated as the events of the week unfolded – initially climbing on Tuesday when the devaluation occurred and prompted a number of analysts to suggest the Federal Reserve’s target rate increase could be deferred to next year. Volatilities in VIX and TYVIX subsided somewhat in midweek following mostly positive U.S. economic releases (U.S. July retail sales were up 0.6 percent, July industrial production also was up 0.6 percent and the July producer-price index was up 0.2%), but volatilities nonetheless finished the week higher than last Friday. The currencies group saw similar trepidations, but only JYVIX has advanced from last Friday.

Figure 1: Weekly Volatility Update

It Was the Second Time This Year That a FX Shock Hit the VIXes

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Following Futures on Treasury Volatility
Since their inception in November 2014, futures on TYVIX have followed the tribulations of the spot index and this week is no different.  With a relatively flat term structure, the average levels of current and future expected volatility are now converging to 6, close to their median value since last November.

Figure 3. Futures on TYVIX (Ticker VXTY)
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Post written by Catherine Shalen, CBOE Research

  • BankofVol

    What would be interesting is to understand why the VIX Future front
    month started to completely diverge from the Spot VIX this morning with
    the VIX going down (behaving in line with an up market) and VIX future
    going sharply up at odd with the Spot. the SPOT VIX down -3% when the
    Future is up 1.5% when it should be down -1.5%.

    • There is no ‘fair value’ relationship between spot VIX and VIX futures like the relationship between the S&P 500 Index and S&P 500 futures. Since the price action of the two is not held together by arbitrage traders they will diverge at times. If a large trade came into the VIX futures or option market then the front month price action may diverge from the index.