Implied volatility on Treasury options remains very low, having moved sideways at low levels for months. Implied volatility on 10-year T-note options is now at about 4%, one of the lowest readings of the past decade.
In the current situation, the low level reflects a blend of calm on the inflation front and the Fed outlook, as well as a small amount of complacency with respect to the outlook on rates. The low level of bond volatility has probably been a factor in lowering volatility on equity options, as can be seen in the VIX, which recently reached a multiyear low.
This weakens the view that the low level of equity volatility is a sign of complacency and excess speculative fervor, chiefly because it may be based on an important fundamental: stable interest rates.
What do you think of volatility?
P.S. Will you be there when Cramer makes his next move?
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Tony Crescenzi Blog Fed Vice Chairman Leans Against Rate Cuts 1/8/2007 1:30 PM EST Donald Kohn predicts the rate of economic growth to pick up in 2007, without the Fed's help.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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