(Test 1) V2X-VIX® Index Spread Surges on French Election Risk

Mandy Xu

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June 21, 2024

V2X-VIX^® Index Spread Surges on French Election Risk

WHAT STANDS OUT:

Implied volatilities were mixed across asset classes last week with a clear regional split as US CPI came in better than expected and investors priced in more dovish Fed rate cuts by year-end. In contrast, European assets were hit by rising geopolitical risk in France, with the first round of the legislative elections scheduled for June 30^th (final round July 7^th). As a result, while US equities continued to make new record highs, European stocks sold off over 4% as the French-German 10Y bond yield widened to the highest since the 2011 European sovereign debt crisis.
European equity vol, skew, and convexity all jumped notably as a result. The V2X index gained over 6.5 vol pts to almost 20% while the VIX index rose only marginally by 0.4 pt. The V2X-VIX index spread surged to its highest since the start of the Russia/Ukraine war in 2022 (see chart below). The V2X index skew/convexity premium also doubled from 1.7 to 3.5 vol pts while the equivalent skew/convexity premium in the VIX index gained by just 0.6 pt to 1.9%.
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