Tariff Threat Dismissed As Implied Volatilities Fall

2025-07-15 02:50:00 ET

Cross-Asset Volatility : Implied volatilities fell across asset classes last week despite renewed trade risk, as President Trump threatened to increase tariffs on a number of trading partners. Investors largely shrugged off the threat, with credit volatility declining the most. VIXIG index came in 3.5 pts to 23 bps vol, trading almost 1 std. dev. below its long-term average and screening as the cheapest cross-asset vol (see Exhibit 1). Equity volatility fell, with the VIX® index dropping 1 pt to 16.4%, while SPX® 1M realized volatility remained stable at 10.3%. Oil, gold, rates, and FX implied volatilities all declined marginally by less than 1 vol pt, with gold currently screening as the richest cross-asset vol, with 1M implied volatility trading ~0.5 std. dev. above average. All this is a far cry from the last time Trump threatened large-scale tariffs against US trading partners, when implied volatilities surged across asset classes following the “Liberation Day” announcement. The lack of reaction this time shows investors have grown desensitized to tariff headlines and see all this as part of negotiating tactic toward an eventual trade deal – whether that materializes remain to the seen....

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