VIX Measures of Volatility Boosted by Muddled Economic Outlook

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Figure 1. TYVIX, VIX and Foreign Exchange Volatility Indicators


VIX volatility indicators for Treasury, equity and foreign exchange markets edged up this week as central bankers and investors appeared equally bemused by the crosscurrents in global economic news. Adding to ongoing concerns about China, low commodity prices, lack of inflation and lackluster growth, yields on sovereign bonds in Europe and Japan turned negative. Negative yields are sometimes viewed as a possible precursor to recession. The Bank of England is not expected to raise UK interest rates, and the date of a U.S. rate hike by the Federal Reserve is receding. The 10-year Treasury yield is still positive, but decreasing. On the other hand, many economists remain sanguine about the U.S. economy, in spite of slower employment growth and anemic spending by consumers and manufacturers.

Figure 2. Weekly statistical update


Looking Forward

Except for VIX and JYVIX, the term structures of VIX indicators of volatility have normalized to contango. The term structure of VIX suggests greater volatility expected in short term followed by stabilization. JYVIX is in backwardation, which means volatility is expected to decrease.

Figure 3. Term structures of VIX-like volatility indexes