The rally over the last 3 weeks has been accompanied by a move in VIX spot back below 14 for the first time since May. Not surprisingly, with that large move lower in the VIX, the VIX futures curve has reverted to the steep contango (each month lower in value than the next month) that characterized VIX Futures for much of 2013.
Here is last week’s snapshot:
Compare that to today’s snapshot:
So July-Nov VIX Futures are all down 1.5-2 points, quite a large move considering that VIX spot was already down near 15 last week. In the meantime, realized vol in the SPX has certainly dribbled lower, with 10 day realized vol now only around 8. American-based traders are pricing in more of the same going forward.
On the other hand, similar to last week, most other assets and geographies are still pricing in volatility higher than their 52 week average:
Oil continues to be the only other major asset class where current implied volatility is lower than the 52 week average. The Euro Stoxx 50 index vol has also declined to below its average in the equity world.
So vol markets are pricing in continued American exceptionalism going forward. That worked in the first half of 2013. The next FOMC meeting on July 31st could set the table for whether it continues in the second half.