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.
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| Data via FRED |
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