Cross-Asset Volatilities Decline as Traders Pivot Away from Hawkish Fed

Implied volatilities declined across the board last week as the markets pivoted away from a hawkish Fed to an intense but ultimately positive US-Iranian weekend negotiation to end hostilities. USO 1M 25-delta call skew is now lower vs pre-War levels (USO call implied volatilities trading +3pts above comparable put implied vols vs a pre-War skew differential of +15pts). Interest rate volatility per VIXTLT Index has declined to a 1 percentile low despite both, the Fed’s hawkish tone and Kevin Warsh’s removal of forward guidance which in theory increases uncertainty (and therefore implied volatility) about future policy. Nonetheless, the probability of a 2nd rate hike still remains low (36%). Learn more in this week’s Macro Volatility Digest.



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