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A Survey of Wartime Volatility

This (US) holiday weekend brings headlines from North Korea – the sabers have been rattled and markets are on edge – so we decided to put together a long dated history of volatility in relation to historical events for you to ponder.

A Brief History of Volatility

WARNING: READ THE METHODOLOGY CAREFULLY. THE VOLATILITY SHOWN BELOW IS NOT ANALOGOUS TO TRADABLE SECURITIES. The VIX index, started in 1993, is shown in turquoise for comparison. “The market can stay irrational longer than you can stay solvent.”
HistVol
The data above is based off of Robert Shiller’s monthly analysis of S&P returns. It’s the annualized (realized) volatility of the monthly data (and therefore does not incorporate the severity of single day events). Recessions are highlighted in red and selected wars are highlighted in green. Historical dates are marked with dotted lines and labeled.

As you can see realized vol spikes much more dramatically during economic crises than wartime events (perhaps an obvious observation, but an interesting one to keep in mind in the given environment). That being said, volatility can be low after a dramatic, wealth destroying sell offs, so here are the YoY returns:
HistReturns
Something to ponder. Thoughts and feedback are always welcome. Enjoy the rest of the holiday.

 

Cross Asset Class Volatility Update

In the last few weeks volatility has returned to financial headlines with a vengeance leaving traders checking under their beds for asset bubbles and causing “panic” when VIX traded with a 17-handle for the first time since November 2016. So what’s really playing out in markets?

* note that the volatilities shown are calculated using industry standards based on the type of asset; for example, absolute levels cannot be compared between rates and metals.

Rates

In rates space historical volatility (orange) has picked up but implieds (blue) are lackadaisical. FV/5-yr, TY/10-yr, and US/bond, 30-day constant maturity series are shown respectively below:

 

Here’s a longer dated TY history:

Metals

Gold vol has actually found a bid (with silver and palladium following suit):

While platinum, thus far, is flat:

Energy

Natural Gas implied volatility is the lowest it’s been since 2014:

Although oil is off the lows of the year:

Ags

Vol has come back down in grains after an exciting month although wheat could be picking up again:

Equities

And last but not least, E-mini S&P500 vol has caught a bid:

For a little perspective of where we are currently, here’s a 5-year history of a few constant maturity series:

Like all things, low vol environments eventually come to an end, but low vol by itself doesn’t “trigger”  eruptions. Claiming that vol can uptick ahead of an event isn’t exactly going out on a limb. But I’m sure they’ll tell you they told you so next week.