2012-04-02

Volatility Lowest Since ’07 in Stocks, Bonds, Currencies


I don't have anything to add to this Bloomberg report:
Markets for equities, bonds and currencies are the calmest they’ve been since 2007, and that’s making some investors nervous. 
Options that protect against Standard & Poor’s 500 Index losses plunged 64 percent in the last two quarters, the most ever, data compiled by Bloomberg show. Interest-rate volatility is near a five-year low, while demand for hedges against extreme moves in the dollar is close to the weakest since 2008. Bank of America Corp.’s Market Risk cross-asset volatility index reached a level not seen since November 2007
Becalmed markets have fooled investors before. The Chicago Board Options Exchange Volatility Index fell to a 13-year low of 9.89 in January 2007 before the financial crisis of 2008 wiped $37 trillion from share prices worldwide. As the gauge of options prices slipped within 5 points of that level last week following a 28 percent S&P 500 rally, demand has risen fivefold for exchange-traded products whose value increases should volatility rebound. 
Nobody is scared right now, but the fear will come back,” Sean Heron, who manages options strategies at Glenmede Trust Co., said in a March 30 phone interview. The Philadelphia- based firm oversees about $20 billion. “All bets are off as soon as we get beyond the next three months. Europe could rear its ugly head again and it’s an election year in the U.S.”
[...] 
There clearly seems to be some underestimation of risk in the markets,” Natividade, the London-based head of foreign- exchange quantitative strategy for Deutsche Bank, said in a March 29 interview. “People may think we are in a new paradigm of low volatility, but that is not what we expect,” said Natividade, whose firm is the world’s largest currency trader, according to Euromoney Institutional Investor. 

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