ECB Eases Volatility Bets Even as Intraday Stock Swings Persist

Even as U.S. stocks post the longest stretch of 1 percent swings since 2012, volatility expectations are falling across asset classes.

A Bank of America Corp. gauge of market swings in stocks, bonds, currencies and commodities has dropped from a 1 1/2-year high as the European Central Bank said it will start a quantitative-easing program of 1.1 trillion euros ($1.3 trillion). That doesn’t mean the region is out of the woods, and Barclays Plc says volatility may persist. QE will help only if confidence and economic growth improve, the bank’s asset-allocation strategist Sree Kochugovindan wrote in a note today.

“The ECB package of measures announced yesterday has helped push implied volatility even lower,” Kochugovindan wrote. “However, broader event risk and central-bank policy uncertainties persist, and it is not yet clear whether a sustainable downtrend in implied volatility has begun.”

The market also has yet to fully digest the implications of the Swiss National Bank’s currency-peg removal, rate cuts from Denmark to Canada and India, and the Bank of England’s more dovish stance, Barclays said. Sunday’s election in Greece and those in Spain and the U.K. later this year may increase risk as well, according to the note.

Bank of America’s Market Risk index has retreated to minus 0.22 in the past four days and is heading for its biggest weekly slump since 2012. That’s still high relative to its one-year average of minus 0.91.

A Barclays model based on monetary-policy stance, macroeconomic volatility and economic expectations suggests that financial volatility is near its fair value. Swings could decline slightly in the near term, depending on factors including the implementation of the QE, the note said.

The Standard & Poor’s 500 Index has moved 1.9 percent from its lowest to highest levels on Thursday. That’s the 15th straight swing of more than 1 percent intraday, the longest stretch since an 18-day run ending on June 21, 2012, data compiled by Bloomberg show.

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