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Wearing My Happy Glasses

02 May 2017 by lberuti

Volatility has never been so low, and it is difficult to see what might change the situation. That is certainly the feeling most investors have and that is what VIX – an indicator based on the implied volatility of US equity options with a wide range of strikes maturing within 2 months – is telling us. It traded today at levels not seen since before the Great Financial Crisis. There is no stress and it is also obvious from the price action of the credit market, which rallied in a straight line from start to finish. More hedges came off across the board, as the general feeling is that Mrs Le Pen has no chance to come on top next Sunday. Investors have decided to brush aside the uncertainty surrounding the general elections that will take place in France in June and which will effective decide the composition of the government and its political orientation. They have also decided to ignore the tough negotiating stance which was endorsed by the 27 EU members in the talks regarding Brexit with the UK, to which the latter responded by saying it is bracing for a confrontation. Back from a 3-day week-end, they are wearing their happy glasses.