February 26, 2016 Weekly Report on CBOE VIX Index Suite

TYVIX Update Header

Foreign Exchange Volatility Remains a Hot Spot
The chance of divergence between monetary policies and the impact of oil prices and China factors on international trade continues to sustain volatility in foreign exchange VIX indexes: CBOE/CME FX Euro Volatility IndexSM (Ticker: EUVIX); CBOE/CME FX Yen Volatility IndexSM (Ticker: JYVIX)  and CBOE/CME FX British Pound Volatility IndexSM (Ticker: BPVIX).
In contrast, this week the CBOE VIX Index stabilized as stock markets rallied on overall favorable U.S. economic news. Most economists now peg the probability of another fed funds rate hike at more than 90 percent, but the next meeting the Federal Open Market Committee is not until March. Meanwhile, the 10-year Treasury yield is still sliding, which may explain the slight decrease in the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (ticker symbol: TYVIX).

Figure 1. Weekly update of volatility indicators

Fig1

Taking a year’s perspective, volatility is on the rise, as feared by market participants. The BPVIX is 70 percent higher than a year ago, the JYVIX is 59 percent higher, the EUVIX is 65 percent higher and the VIX is 35 percent higher. The TYVIX is the laggard — it is only 12 percent higher.

Figure 2.  Volatility: A year-over-year comparison

Fig2

Forward Outlook
The drop in the VIX is steepening the term structure of forward VIX values. The third month forward is now 14 percent higher than spot, compared with 8 percent last week. The TYVIX term structure is V-shaped and the 3rd month forward TYVIX is lower than spot. FX VIX term structures are relatively flat, and that suggests higher volatility in exchange rates is expected to persist.

Figure 3. Term structures of VIX-like volatility indexes

Fig3