Tariff And Powell Risk Drive Elevated Cross-Asset VRPs

Summary

• While overall levels of implied volatility remain muted across asset classes, what stands out is the even lower levels of realized volatility.
• The divergence between the RTY-SPX and QQQ-SPX vol spreads continued last week, with the RTY-SPX 1M vol spread widening to a YTD high of 8.5% while the QQQ-SPX vol spread narrowed to near a 1-year low of 3.0%.
• Interestingly, as we near the August 1st tariff deadline, we’re starting to see some risk premium being priced into the SPX vol surface for the event, as shown by the 'kink' in the term structure.

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By Mandy Xu

Cross-Asset Volatility: Implied volatilities were mixed across asset classes last week on the back of better-than-expected economic and earnings data, while speculation over Powell’s tenure intensified. Credit and FX implied vols gained modestly wk/wk while interest rate, oil, and