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Popular bets on low volatility were pummeled on Wednesday, as the market endured its first big selloff of 2017 following a protracted period of calm on Wall Street. A pair of popular ways to bet on a protracted period of calm in the markets were getting hammered as the stock market suffered its worst daily decline in months. The CBOE Volatility Index, or VIX—the index those funds are pegged to—is jumping the most in about eight months in the wake of Wall Street's first major equity-market selloff in months. Those trades came as the VIX, otherwise known as Wall Street's fear gauge, closed at its lowest level since 1993 last week. Investors have increasingly been piling into these antivolatility bets, represented by big inflows over the past weeks.
The downshift for the rate-hike outlook also comes as so-called risk assets, notably stocks, finished sharply lower, along with yields for government bonds. Yields, which move inversely to prices, tend to fall in times of uncertainty and as expectations for rate hikes decline. That is down from expectations as high as about 90% just last week and 74% on Tuesday, according to the CME Group's data. Federal-funds futures were indicating that the market was pricing in a 64.6% probability of a rate hike at the Fed's two-day meeting starting June 13-14. The yield on government bonds have been near their lowest levels in three weeks, with the 10-year Treasury note [BX:TMUBMUSD10Y] yielding 2.22%.
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As it stated in
Investors' bets on Wall Street calm just got crushed as stock market sells off
Popular bets on low volatility were pummeled on Wednesday, as the market endured its first big selloff of 2017 following a protracted period of calm on Wall Street. A pair of popular ways to bet on a protracted period of calm in the markets were getting hammered as the stock market suffered its worst daily decline in months. The CBOE Volatility Index, or VIX—the index those funds are pegged to—is jumping the most in about eight months in the wake of Wall Street's first major equity-market selloff in months. Those trades came as the VIX, otherwise known as Wall Street's fear gauge, closed at its lowest level since 1993 last week. Investors have increasingly been piling into these antivolatility bets, represented by big inflows over the past weeks.
Rate-hike expectations recede as the stock market unravels
The downshift for the rate-hike outlook also comes as so-called risk assets, notably stocks, finished sharply lower, along with yields for government bonds. Yields, which move inversely to prices, tend to fall in times of uncertainty and as expectations for rate hikes decline. That is down from expectations as high as about 90% just last week and 74% on Tuesday, according to the CME Group's data. Federal-funds futures were indicating that the market was pricing in a 64.6% probability of a rate hike at the Fed's two-day meeting starting June 13-14. The yield on government bonds have been near their lowest levels in three weeks, with the 10-year Treasury note [BX:TMUBMUSD10Y] yielding 2.22%.
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