Our Observations: Changes in the risk environment followed no particular pattern. Certain markets like Korea and Hong Kong increased in volatility while most European markets and the U.S. experienced a slight decrease in volatility. In general, risk in stock markets appears to be muted while risk in bonds, currencies, and commodities approaches the long-term volatility level. Here again, much of this is likely driven by rate policy and expected inflation so we think it will be important to monitor as the environment becomes clearer.
Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.