Written By

Sheikh Hasib Ahmed

Panic Creeps Up as VIX Curves Invert for First Time Since March 

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On a scale unseen since the regional bank crisis in March, the US stock selloff is causing fear among volatility traders.

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That's giving rise to optimism that the equity meltdown is nearing its end, according to bizarre Wall Street reasoning.

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On Tuesday, when Treasury rates continued to rise and market losses accelerated, experts in derivatives priced in more volatility for the present than for the future.

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The spot price moved above its three-month futures for the first time since the volatility in US lenders earlier this year as a result of a 2.2-point increase in the Cboe Volatility Index, or VIX, a measure of expected price fluctuations in the S&P 500.

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In the past year, the inverted VIX curve setup has shown twice, and both times it has signaled market bottoms.

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"The Treasury yield is really all that matters," said Chris Murphy, co-head of derivative strategy at Susquehanna International Group.

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"However, a VIX-term structure inversion is a sign the stress is being fully priced in." Before I'm sure this selling spree is over, I'd need to witness a VIX term inversion.

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As a result of strong job statistics and worries that the Federal Reserve will keep interest rates higher for longer, the S&P 500 dropped more than 1% on Tuesday, hitting a four-month low.

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Three sessions in a row saw an increase in the VIX, which briefly topped the closely watched 20 mark before closing at a six-month high.

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In contrast to typical situations where investors are prepared to pay more for contracts with a longer time horizon, the volatility index also increased above its three-month futures.

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