Bloomberg News

VIX Soars Most in 15 Months After Fed Minutes

February 20, 2013

The benchmark gauge for U.S. stock options rose the most 15 months as minutes from the Federal Reserve’s last meeting showed a debate over the monetary stimulus that has fueled a four-year bull market in equities.

The Chicago Board Options Exchange Volatility Index (VIX), or VIX, climbed 19 percent to 14.68, the biggest advance since November 2011. The Standard & Poor’s 500 Index sank 1.2 percent, the most since Nov. 14. The VIX, which measures the cost of using options as insurance against losses in the S&P 500, closed at the lowest level since April 2007 yesterday.

“It’s not surprising that to see a move up from such a magnitude coming from such a low level,” Hank Smith, who helps oversee $6.5 billion as chief investment officer of Haverford Trust Co. in Radnor, Pennsylvania, said in a phone interview. “In such an environment, the Fed minutes would be a good excuse.”

The S&P 500, poised to enter the fifth year of the advance that began in March 2009, is within 3.4 percent of its 2007 record amid global central bank stimulus. The Fed has tied monetary policy to unemployment and announced a third round of bond purchases, while the European Central Bank pledged to buy as many securities as needed to lower borrowing costs and preserve the euro.

Stocks extended losses today after minutes of the Federal Open Market Committee’s Jan. 29-30 meeting released today showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a U.S. labor market burdened with 7.9 percent unemployment.

Some said an earlier end to purchases might be needed, and others warned against a premature withdrawal of stimulus. Several policy makers said the central bank should be ready to vary the pace of their $85 billion in monthly bond purchases.

The VIX has fallen 19 percent this year, adding to a 23 percent drop in 2012, as the rally in U.S. equities reduced demand for protection against losses. The gauge closed at the highest level since Jan. 2 today.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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