Volatility at 1-Yr. Low, Financial Conditions at 2-Yr. High

The Chicago Board Options Exchange SPX Volatility Index (VIX) reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes. 1st & 2nd month expirations are used until 8 days from expiration, then the 2nd and 3rd are used.

The VIX has been hovering around its lowest levels in more than a year. Its 52 week range was 22.48 - 89.53. This is an indication that investor sentiment and market volatility have improved significantly over the past year.

Also, shown below, the Bloomberg US Financial Conditions Index reached a new high for 2009. The index combines yield spreads and indices from Money Markets, Equity Markets, and Bond Markets into a normalized index. The values of this index are z-scores, which represent the number of standard deviations that current financial conditions lie above or below the average during the period.

The Bloomberg US Financial Conditions Index closed at the highest level (-.50) since August 2007. This is an indication that financial conditions are indeed improving. They are beginning to near more normalized levels.