4 September 2016 US Fixed Income Weekly United States Cfecht HY Strategy IG Strategy US Credit Strategy Volatility This High Tends To Last Aftershocks lasting for weeks/months usually follow spikes like this As the dust from initial shake-up in global risk assets last week began to settle, markets turned to soul-searching. Was that a flash crash or not? How much did poor summer liquidity contribute? What part did new regulations play? Did markets "overreact", or was the move supported by deteriorating macro fundamentals? Will the Fed hike or do QE4? Rarely did opinions appear to vary this greatly over such a wide set of important issues. The extent of volatility was of course incredible. From a 7x sigma move in equities and all-time high change in vol of vol on Monday, to 700pts of total travel distance by S&P500 during the week, to four consecutive days of 6x- 15 plus sigma moves in oil, recent trading sessions were nothing short of 20 extraordinary. One particular development that gained some attention but still 1997 lacks proper appreciation by the market, in our view, is a failure to price dozens of equity ETFs on last Monday opening, a development that could have long-lasting repercussions for this $2trIn AUM industry. As it often happens, this surprise development exposed how far off the reality perceptions stood on VIX index 2006-2011 the topic of liquidity. Whereas so many pundits predicted the day when HY/IG jo ... ETFs will fail to clear, plain-vanilla equity ETFs failed to do so, while no issues iS were reported in credit space. The VIX index has closed at above 30pts for three days in a row early last week, and returned there this Tuesday. The significance of this level comes from historical experience shown in two graphs on the right. Here, for the sake of better readability, we have broken down its time series to 1997-2003 and g 2007-2011, and highlighted the 30pt level with a red line (2004-2006 and 2012- 2001 2015