Leading volatility index hits levels not seen since 2008
Wall Street’s ‘fear gauge’ surges in face of coronavirus spread and Saudi-Russia oil price war
The CBOE Volatility Index (VIX) has surged to its highest level since the global financial crisis of 2008.
The index studies out-of-the-money options prices in order to gauge the implied 30-day volatility of the America’s leading stock market, the S&P 500.
By mid-afternoon trading GMT the VIX had skyrocketed 33.71 per cent to stand at 56.08 points. This was slightly down on the hour before when it threatened to break 60 for only the second time in its history.
This surge comes as markets around the world reel from the wider impact of the Covid-19 virus and the oil price war between Russia and Saudi Arabia.
Some traders are betting on the VIX reaching triple figures sometime this week. However, during the financial crisis of 2008 the index still did not break 80 points.
After Russia rejected plans put forward by OPEC to buoy the value of the commodity by further cutting production, Saudi Arabia slashed its oil price. This triggered the largest drop in the price of oil since the First Gulf War in 1991 and significant plunges in indices across the globe.
The yields on both 10-year and 30-year Treasury bonds reached record lows as investors flocked to safe-haven options.
Futures on both the S&P and the Dow Jones Industrial Average were temporarily frozen overnight after reaching their 5 per cent limit for the first time since the election of Donald Trump in 2016.
With White House aides set to meet with the president later today, there is growing expectation that the Trump administration will resort to some form of economic stimulus. This would aim to blunt the effect of what is already being termed by some traders "Black Monday".
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