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📝 VIX, MOVE, and FX Volatility Are Well Below Highs Seen In Past Recessions: Westpac Strategy

Volatility of course tends to be higher during recessions, but there’s no hard and fast rule - the depth and severity of each of the last

four recessions varied markedly, as did the policy response and the underlying causes. That said, we can take a “temperature reading” and compare where each of these volatility metrics sit relative to their average levels in a recession. The average monthly closing level for the VIX, MOVE, Baa credit spread and G10 FX volatility over the last four recessions, the average level that prevailed in the 12 months prior to the last four recessions and the average level that prevailed outside of these two periods (growth phases). If anything, the rise in the MOVE bond volatility index from its 2021 lows (+145%) materially exceeds the average lift observed in a recession (+65%). The rise in FX volatility from its 2021 lows (+75%) is about on par with recession norms, while the VIX still has further to rise before it approaches recession averages. Credit is once again the exception to the rule, the Baa credit

spread typically rising about 50% on average, yet the Baa spread is still close to cycle lows.



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