Measures of price swings in the foreign-exchange, bond and equity markets dropped to the lowest levels in about two months as policy makers from China to the U.S. pledged to support global growth.
JPMorgan Chase & Co.’s Global FX Volatility Index declined for a ninth consecutive day today. A gauge of swings in Treasuries slid yesterday to the least since May 24 and the Chicago Board Options Exchange Volatility Index, or VIX (VIX), which measures options on the Standard & Poor’s 500 Index, fell to a three-month low.
Volatility has waned since Federal Reserve Chairman Ben S. Bernanke told a congressional panel on July 17 that he hasn’t put central-bank bond purchases “on a preset course” for tapering and will adjust them based on economic data. Chinese Premier Li Keqiang said the slowest economic growth policy makers will tolerate is 7 percent, according to Beijing News today. European Central Bank President Mario Draghi signaled on July 4 he would continue to support the economy.
“Markets are taking the change in tone from the Fed as a positive sign on growth and that’s suppressing volatility in equities, which is spilling over into other assets,” said Adam Cole, the London-based head of Group-of-10 currency strategy at Royal Bank of Canada. “Unless you see a real change in tone, whereby the Fed rhetoric is seen as bad news, then it’s probably going to continue to be a negative environment for volatility.”
JPMorgan’s currency-market index, based on option premiums, dropped to as low as 9.16 percent today, the least since May 14, and down from a one-year high of 11.96 percent on June 24.
Price swings in Treasuries fell to 72.62 yesterday, the least since May 24, according to Bank of America Merrill Lynch’s MOVE Index. It climbed to 117.89 on July 5, the highest since December 2010, and has averaged 100.38 over the past five years. The VStoxx Index, which gauges the price of options on the Euro Stoxx 50 Index, fell to 16.8, the lowest level in two months.
“Volatility is low but at any time it could explode upward,” said David Bloom, global head of currency strategy at HSBC Holdings Plc in London. “It feels calm but I think people are very wary of this calmness.”