Volatility Knocked Off Historic Lows as Markets Question Growth

(Bloomberg) -- Historically low volatility has been a defining feature of markets in the past couple of months. Friday’s market action knocked things back toward “normal.”

A “micro-burst” in volatility metrics, Citigroup Inc. rates strategist Edward Acton called it. U.S. equities tumbled and longer-term Treasury yield slid below those on T-bills in wake of poor manufacturing PMI readings. Those came days after the Federal Reserve suggested it was more concerned about the outlook than many had anticipated.

The Merrill Lynch Option Volatility Estimate Index, which measures price swings in Treasuries, jumped 17 percent on Friday after hitting a record low Wednesday. The Cboe Volatility Index for stocks, or VIX, had its biggest gain of the year with a 21 percent increase. The JPMorgan Global FX Volatility Index rose 4.3 percent, and the firm’s Emerging Market Volatility Index advanced 7 percent, both the most since August.

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Of course, the historically low levels of volatility also contribute to the big percent changes, since they’re coming from a lower base. A gain of three points on the VIX is going to make more of an impact in percent terms if it’s at 12 than if it’s 20.

Further moves appear in the offing. VIX futures gained 0.2 percent to 0.7 percent along the curve as of 10:04 a.m. in Singapore, while three-month volatility on the dollar/yen cross is rising for a fourth straight session.

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Adam Haigh

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