Or, a history of vol, courtesy of Goldman:
Do click to enlarge. Now, we hate to do this considering the increasingly angsty feel of our inboxes — take Deutsche’s Jim Reid for example:
Unbelievably today marks the end of the first half of the year. Its been a generally positive first half for financial markets but one where volatility has been low. Indeed after what seems like months of very low volatility, perhaps a week featuring Euroarea CPI, global PMIs/ISMs, Yellen, an ECB meeting and non-farm payrolls – jammed into what effectively will be four days – will encourage some more interesting price action?
But it’s worth remembering that this period of low vol isn’t particular unusual, even if its spread across all asset classes is more striking. From Goldman again:
… it is not surprising that volatility is currently low. We are still clearly in the phase of expansion where the output gap is negative but improving. The US unemployment rate has been falling rapidly. The dispersion of US growth forecasts has narrowed significantly. Financial stresses – most strikingly in Europe – have receded substantially. Front-end rate curves remain anchored by policy. And the so-called “Great Moderation” in economic volatility that was briefly interrupted by the GFC seems to be back.More formally, comparing current levels of volatility to simple macro models that try to explain past movements in volatility with the above-described macro factors does not suggest that we’re far from what historical relationships would predict. Plugging GS macro forecasts into the same models suggests there is a good chance that the current low-vol regime will persist for some time.
Yeah. As JP Morgan’s Flows & Liquidity team said over the weekend, while the current levels of vol are low they are far from unprecedented — macro surprises have collapsed and the macro vol increase seen post Lehman has been unwound while monetary surprises clearly peaked during the second half of 2013 but stabilized this year:
Rate vol was similar to current levels during 2005/2006 and even lower than current levels during 1960s. Equity vol was similar to current levels during 2005/2006 and was even lower than current levels during 1995/1996 and during 1960s too. In general, low levels of vol are typically seen in the mid phase of an economic or market cycle, so the current low level of volatility should not come as a surprise.
Still, calm isn’t the worst thing going and this period too must eventually pass. More in the usual place.
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