Nobody has missed the extreme fear in equities. VIX has exploded and continues holding elevated levels.
Sure, the entire China/Evergrande situation remains uncertain, but the news isn’t news anymore.
The China show has managed stealing a lot of the FOMC attention. GS has two potential main hawkish risks you should consider if:
1, the FOMC reveals next week that it intends to taper at a faster pace or
2, the 2022 median dot shows a hike
Let’s see what they say, but more importantly how do you play this?
The VIX vs VXTLT spread has expanded big time. In July we saw the inverted opportunity where GS were accurate in predicting VXTLT should fade vs VIX.
Given the fact equities fear having exploded and VXTLT still calm on a relative basis, we find this an interesting cross asset vol pairs trade.