Breaking News
0

Feb Volatility Spike Not Confirmed By Yield Spread

By Paban PandeyStock MarketsMar 08, 2018 07:33AM ET
www.investing.com/analysis/feb-volatility-spike-not-confirmed-by-yield-spread--1516-on-spot-vix-holds-key-200296553
Feb Volatility Spike Not Confirmed By Yield Spread
By Paban Pandey   |  Mar 08, 2018 07:33AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

There was non-confirmation between the spike in VIX a month ago and U.S. high-yield spreads. Depending on which one is sending the right signal will have consequences for whether or not 15-16 support on VIX holds.

VIX, daily
VIX, daily

On February 6, spot VIX surged to 50.30 intraday before closing the session at 29.98 (violet arrow in Chart 1). After similar spike reversals, VIX in the past has shown a tendency to continue to unwind (blue arrows). True to this phenomenon, volatility this time around has subsided. Although with a slight twist.

It has been a month since that spike, but VIX – unlike in the past – is yet to enter low double digits, let alone sub-10. Support at 15-16 was tested late February, and held. The 50-day moving average – slightly rising – lied there as well.

At least thus far, this represents a slight change in VIX’s character. Volatility bulls use this to argue VIX has entered a higher plateau. Possibly, except for non-confirmation below.

VIX vs high-yield spread
VIX vs high-yield spread

The February spike in VIX was not confirmed by high-yield spreads over Treasury securities.

Chart 2 pits spot VIX with the spread between ICE BofAML US high yield BB effective yield and 10-year Treasury yields. On the 9th (last month), the green line rose to 214 basis points, and again on the 13th, and that was it. Tuesday, it stood at 203 bps. (The chart uses a closing price for VIX, hence does not reflect intraday highs/lows.)

Back in August 2015 when VIX had a similar intraday spurt (high of 53.29), the spread was much higher, and even higher in February 2016 when stocks reached a major bottom. Not this time. High-yield bonds hardly panicked, only spot VIX did. If – big IF – the signal coming from these bonds is right, then this will have repercussions for volatility going forward – at least near term.

VIX futures
VIX futures

Once again, if volatility has entered a higher plateau, then the afore-mentioned 15-16 support should hold. If on the other hand high-yield bonds are right, then it probably gives way. In the latter scenario, there is plenty of unwinding still left in how non-commercials are positioned in VIX futures.

In the week ended February 6, these traders held record 85,818 net longs. By Tuesday last week, their holdings had dropped to 34,383 contracts, but are still massive historically. In the past, once unwinding begins, non-commercials eventually switch to net short, dragging the cash lower (arrows in Chart 3).

Is it different this time? That will depend on which of the two in Chart 2 is sending the right signal. The line in the sand is 15-16 on spot VIX.

Thanks for reading!

Feb Volatility Spike Not Confirmed By Yield Spread
 

Related Articles

Feb Volatility Spike Not Confirmed By Yield Spread

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email