VIX is down, bonds are up - what does it mean?

What really makes us nervous in this market is that we see a lot of risk in the markets right now, but we do not see that reflected in the VIX volatility index. As we can see on the following chart, the VIX index is declining, meaning that investors are becoming more and more risk tolerant, which to us is a dangerous stance in this current market.  

While we see investors becoming more risk tolerant, we do see a contrarian move in the bond market. Below we see a chart of the 30 year bond price and as we can see it has climbed dramatically since early April. Currently investors seem willing to lend the government their money and get back a paltry 4% for 30 years – a rather risk adverse signal.

Generally in the markets when stock markets rise, the bond market declines – not so in this current environment. We saw similar action back in 2000 just before the Tech market crash and again in 1987 just before that stock market crash.

Be careful out there!

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