No great surprise given the recent events in Cyprus, but as we can see from the chart below VSTOXX continues to trade at a higher level than the VIX or VFTSE volatility indices, continuing a trend that’s been evident since late 2011.
(click to enlarge)
In particular the Cyprus situation has seen the VSTOXX index spike a little up to a level of around 21, whereas the VIX has been anchored to super-low levels around 13.
However the VSTOXX index is well short of the levels it reached in May of 2012 where it reached a level of around 35, or September 2011 where it topped 50.
The CVIX (Currency volatility) index remains slightly elevated, but also below the May 2012 and September 2011 levels.
Given the amount of uncertainty out there, it continues to seem odd to me that implied volatilities are so low, but that reflects market participants’ collective perception that central banks continue to be willing and capable of taking actions that will calm markets.
Whether that will continue to be the case for the rest of this year, well, we’ll see. It certainly has been the case that the VIX can remain low for multi-year periods (e.g. 2004-2005), but recently history has shown us that unexpected events have a habit of coming along and market reactions can be sharp.