The Volatility Disconnect

The report analyzes the widening gap between suppressed equity volatility (VIX) and elevated bond volatility (MOVE), warning of a potential mean reversion as the market shifts back to macro-driven trading.

Key Takeaways

• 1.VIX is approaching a natural floor despite rising bond volatility and macro uncertainty.
• 2.The market is shifting from micro-driven (earnings) trading back to macro-driven positioning, which often triggers volatility mean reversion.
• 3.VIX seasonality and depressed implied correlations suggest that cheap convexity is becoming attractive for hedging.

Table of Contents

• The Volatility Disconnect
• The vol floor
• VIX blues
• Not all VIX is equal
• The vol divide
• Immune SPX?
• Time for macro
• Time for protection
• Time for convexity

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