S&P 500 Tail Risk (SKEW) Near All-time High While 10-Y Zero Coupon Volatility Lowest Since 2008

By Anthony B. Sanders

The Federal Reserve has been slowly normalizing monetary policy, more at the short-end of the Treasury curve. And the US is trying to normalize trade tariffs as well.

The result? CBOE Skew index (S&P 500 tail risk)* has risen to near all-time highs.

skewfed

While the equity market skew (or fear) index is near the all-time high, the 10-year Treasury volatility measures remain subdued (the 10-year zero coupon Treasury volatility index is back to February 2008 levels).

tyvixzero But can The Fed vanquish fear?

fear

*What is S&P 500 tail risk? The risk of outlier returns two or more standard deviations below the mean.  The Cboe SKEW Index (“SKEW”) is derived from the price of S&P 500 tail risk. Similar to VIX®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options.

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