Notable trends and dislocations (US) Major US equity indices soar to all-time highs as the low vol regime persists Friday marked the end of the second full week following the political turmoil on Wed, 17-May. Since then, volatility has once again collapsed (10d realized is at 4.6%) and the S&P 500 term structure of volatility has steepened with the 3m-1m spread trading in the 90" 2y %-ile. Low S&P 500 short-dated vols pushed down the back end of the curve (ly and beyond), while Russell 2000 1y+ vols remained bid (Chart 19). Last week, the VIX printed 2 of its 15 closes below 10 since 1990 (Chart 20). Vol-of-vol remained supported with the VVIX/VIX ratio setting yet another record (8.58) on Friday. All of this happened as SPX, NDX and INDU finished the week at all-time highs. Chart 19: In the trading sessions following the political turmoil and ensuing volatility spike on 17-May, long-term vols (ly and above) reset lower for SPX but remained bid for RTY The political turmoil on 17-May caused short-term vols to reset higher and the VIX jumped to 15.59 from 10.65 the prior day. 20% | 20% Short-term vols in turn moved the back end of the curve higher 18% ° with e.g. SPX {RTY) ly vols trading higher by 1.05% (0.79%). fe} sn 19% However, the agitation in equity markets was short-lived. The ° 10% front end of the curve collapsed over the subsequent trading 12% sessions and resulted in a very steep term structure for both 10% 5% indices, similar to what we have become accustomed to over 8% the prior months. ; 0% 6% By the end of last week, SPX long term vols (1y and beyond) had 4% 5% moved to virtually the same levels where they traded prior to 1m 3m 6m ly 1.5y 2y the vol spike. RTY long-term vols, however, remain bid. RTY change (RHS) SPX change (RHS) SPX 17-May =e SPX 1-Jun RTY 17-May =——_RTY 1-Jun Source: BofA Merrill Lynch Global Research. Chart 20: 2017 is already the 5" calmest year for the VIX with 76 YTD closes below 12. Despite the short-lived vol spike on 17-May,