The times they aren’t a-changing
Volatility has been low, and that encourages risk-taking
MAY YOU live in boring times. Financial markets have become dull, if proﬁtable. The S&P 500 index, America’s leading equity benchmark, hasnotchedupits longest-ever streak without a 5% reversal. Bond yields may haveinched upin recent months, but are still at the bottom of historical ranges. Institutionsfamed fortheir tradingprowess, such as Goldman Sachs, have seen proﬁtsdentedby thequiescenceof the markets.
notch up 创下
inch up 缓升， 慢慢上涨
fame for 因……而闻名
n.凹痕，凹部; 齿; 减少，削弱
v. 使产生凹痕; 削弱; 打击，破坏; 产生不好的影响;
This lack of market volatility owes much to the steadiness of monetary policy since the depths of the ﬁnancial crisis.Central banks have kept short-term rates low and have intervened to push down bond yields through their programmes of quantitative easing(QE). The classic method of pricing ﬁnancial assets is to say they are worth the discounted value of future cash ﬂows; since central banks have kept the discount rate steady, prices have been steady too.
The late Hyman Minsky, an economist,thought that long booms sowed the seeds of their own destruction. He argued that, when the economy was doing well, investors tended to take more risk(such as taking on more debt). These speculative positions are vulnerable to a shock,such as a sudden rise in interest rates, which can turn into a fullyﬂedgedcrisis.
vt. 给……装上羽毛; 把（小鸟）养到能够飞翔
In these days of sophisticated markets,speculators are not restricted to their own capital or even to borrowed money to buy assets to bet on the good times continuing. They can use derivative instruments to bet on prices. Indeed, there is actually a market involatility.
The steadiness of the S&P 500 shows that actual, or realised, volatility has been low. But investors can also hedge against a sharp move in the stock market (in either direction) bytaking out an option, giving them the right to buy or sell equities at a given price within a set period. The price, or premium, they pay for this option reﬂects a lot of factors.But one of the most important is howchoppyinvestors expect the market to be in future. This measure is the “implied”volatility of the market and is the basis for the well-knownVix, or volatility index.
take out an option 此处理解为买卖期权期权或以期权做对冲
Speculators who believe markets will stay calm can sell (or “write”) options on volatility, earning premium income. The more sellers there are, the more the price, or premium, will fall (and the lower the Vix will be). The danger, then, is that a sudden pickup in volatility could result in speculators suﬀering losses. A linked issue is that investment banks use a measure called “value at risk” to help determine the size of their trading positions; reduced volatility will encourage them to take more risk. Since volatility tends to rise when asset prices are falling, this could be accompanied by much wider ﬁnancialdistress.
Two recent papers from the New York Federal Reserve have examined this issue. The authors point out that low volatility tends to be persistent; historical data show long periods of calminterspersed withshort spikes in the form of crises (see chart). So low volatility today is not necessarily a warning sign. The authors write: “On average,extremely low volatility today predicts low volatility in the future, not higher.”
intersperse with 中间间隔着……
However, the Vix measures the implied volatility over just a one-month horizon. It is possible to calculate implied volatility over a two-year period, creating a slopeakin tothe yield curve, which measures interest rates for diﬀerent lending durations.Back in 2006-07 this volatility curve was very ﬂat, suggesting that investors thought that conditions would continue to berosy. That may explain why so many were caught out by the problems in thesubprime mortgage market.
adj.玫瑰色的; 愉快的，乐观的; 一切都称心如意;
subprime mortgage market 次级抵押贷款市场
This time, the Fed says the volatility curve is steeply upward-sloping (since 1996 the slope has been steeper only 15%of the time). This suggests that investors are notcomplacentat all, and think that volatility may soon return.Investors seem to think the Vix may be as high as 20% (compared with around 11% today) within the next one or two years.
adj.自满的; 自鸣得意的; 踌躇满志; 志得意满
The obvious catalyst for such a change is monetary policy. The Fed is pushing up interest rates andslowly unwinding QE; the European Central Bank is scaling back its bond-buying. So far, this process has occurred without any great alarms. But there may yet be a “tipping point”, when higher rates cause problems for investors and borrowers. In any cycle there is always some institution that has taken a lot more risk than the rest. If a storm comes this year, the world will discover who has gone out without a coat or umbrella.
slowly unwinding QE 慢慢退出量化宽松政策