Pages

Wednesday, January 23, 2013

Credit Spreads are not Confirming the VIX

The VIX currently has a 12 handle and appears to be getting ready to break back down to levels not seen since before the financial crisis.  Prior to 2007 the VIX was quoted in a more narrow range at a lower level than its recent range.  In 2007 there was a structural break and the VIX rose as risk appetite collapsed.  Now for the first time since 2005-2006, the VIX is approaching old levels.  To many this could signal that risk appetite has returned to pre-crisis levels.

Investment grade credit spreads display a similar structural break to the VIX beginning in mid 2007, but the VIX's recent decline to previous lows has not been matched by a tightening of credit spreads.  While that might suggest that the VIX isn't telling the full story on risk appetite, it's tough to say which indicator gives a clearer picture because all in yields are much lower than they were in 2006 even if spreads have not completely compressed.

Data via FRED

No comments:

Post a Comment

For compliance reasons, I don't post comments to the site, but I do like hearing from readers and am happy to answer any questions. Feel free to use the comment box to get in touch. Please leave an email address in your comment so that I can write back, or email me directly at Skrisiloff@avondaleam.com.