Macro Volatility Digest: April 15, 2024

Cross-Asset Volatility: Implied volatilities jumped sharply across asset classes last week as US yields surged on the back of higher CPI inflation while Middle East tensions escalated. Rates vol led the way, with the MOVE Index up almost 19nms wk/wk to 113 bps vol – though still trading below the 50th percentile on a 1Y lookback. Equity vol gained as well, most pronounced in Europe, with V2X Index up 2.7 pts vs. VIX® Index up 1.3 pts to 18.8% and 17.1%, respectively (VIX now in the 80th percentile high over the past year). Gold volatility continued its ascent as geopolitical risks flared, with GLD 1M implied volatility now trading at a 1-year high of 18.0% (+2.9 vol pts). Surprisingly, oil vol was relatively contained despite the Iran-Israel news, with WTI 1M implied volatility unch’d on the week at 29% (38th percentile low). See pg 2 for details.

Exhibit 1: Cross-Asset Implied Volatility (1Y Percentile)

^{Source: Cboe}

Equity Volatility: While SPX® implied vols increased across the board, vol-of-vol saw a bigger jump as VVIX surged over 13 pts to 103% on the back of near record-setting VIX options activity. VIX option volumes hit a 6-year high on Friday (2.6M contracts traded vs. 20-day average of 806k), exceeding the highs we saw in Mar23 (SVB crisis) and Mar20 (covid). Most of the increase came from the call side, as investors monetized existing hedges and rolled into new ones (interestingly, customer call flow was fairly balanced between buy vs. sell, suggesting there was little panic despite the high volume). As we highlighted recently, hedging interest in VIX was already elevated on the back of high investor demand for tail hedges. 

Exhibit 2: VIX Option Volume Highest Since Feb18

^{Source: Cboe}

Skew: SPX skew has seen a meaningful steepening over the past two weeks on the back of both higher downside put demand as well as lower right-tail risk being priced into the vol surface. SPX 1M skew (25-delta spread), for example, has more than doubled from a low of 1.5% in March to now 4.2% (74th percentile high over the past year). See Exhibit 3. 

Exhibit 3: SPX 1M Implied Correlation Nears Record Low

^{Source: Cboe}

Term Structure: Front-end vols led the increase, leading to a flattening in the term structure. The SPX 1Y-1M vol spread narrowed from 3.1% to 2.5% (7th percentile).

Correlation & Dispersion: With earnings providing a bid to single stock vol, it’s not surprising that implied dispersion has been increasing. The DSPXSM index gained another 2.4 pts last week to 31.2% – nearing a 1y high – with earnings playing an increasingly important role for equity bulls against a more challenging macro backdrop of higher rates. Correlation, on the other hand, remains stubbornly muted. Even with Friay’s move, COR1M index is still trading ~15% (vs. 10Y avg of 32%).

Cross-Asset Volatility Monitor

^{Source: Cboe}

Cross-Asset Volatility Snapshot (10Y Lookback)

^{Source: Cboe}

Cross-Asset Correlation Matrix (1M)

^{Source: Cboe}

Cross-Asset Correlation Analysis

^{Source: Cboe}

Macro Equity Volatility

^{Source: Cboe}

VIX Index Volatility

^{Source: Cboe}

US Index Volatility

^{Source: Cboe}

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