Market Volatility Has Peaked, But Is It Over Yet?

According to traders, the worst for markets is over for now, at least for the time being.

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There has been a sharp drop in volatility across a range of asset classes in recent months, indicating that a number of investors are preparing themselves for a brief return to calm market conditions.

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As a result of the VIX, or Cboe Volatility Index, falling to its lowest level in more than a year, the VIX dropped on Friday. Tallbacken Capital Advisors has said that the currency market is volatile and that bank stocks are likely to be subject to turbulence in the near future as well.

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It appears traders aren't on the alert about systemic issues at banks as the expected volatility for bank stocks and exchange-traded funds has fallen. A Tallbacken analyst wrote in a note on Sunday that the company's executives are currently more focused on earnings than anything else.

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There has been a recent slump in bond-market volatility, which shows that traders are not expecting the wild moves in the government bond market that just a few weeks ago engulfed the markets.

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ICE BofA MOVE Index, one of the leading measures of bond-market volatility, hit its highest levels since the 2008 financial crisis in late April, a sign that bond traders are bracing for more extreme swings in Treasury markets for a while to come. During the month of March, government bond volatility trickled into other assets as well as the government bond market.

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At the Federal Reserve's meeting in May, there is a good chance the rate will be raised again. There still remains a great deal of uncertainty about how the central bank will proceed later this year, so volatility in the Treasury market may return quickly.

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