Every quarter, as part of the Treasury’s refunding announcement, the TBAC, aka the Treasury Borrowing Advisory Committee (aka the Supercommittee that Really Runs America), which is the committee that until recently was chaired by JPM and Goldman and which in 2014 handed over mock leadership roles to Dodge & Cox and BNY, shares some critical insight into what Wall Street’s banks are really thinking in a private head to head with the US Treasury. As a reminder, it was this same TBAC which, several months after wewarned about plunging asset liquidity, issued a warning about just this issue, something which even the Fed, whose QE is the primary culprit for the disappearance of high quality collateral, is now actively worried about.
So what did the TBAC hint at as one of the biggest concerns currently on the Treasury’s mind? As it turns out, the primary charge (the secondary was even more interesting and we will discuss it in a post shortly) of the TBAC was to come up with its views on plunging, and until recently, record low market volatility, or as it also defines it: “Market Complacency And Excessive Risk Taking.” To wit:
Asset price volatility has declined over the past two years both in the United States and globally. At the same time, forward-looking measures of market uncertainty across a range of fixed income, equity, and foreign exchange markets have also declined.
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What are the Committee’s views on these developments and the factors that have contributed to the current environment of low volatility globally?
Remember, that it is not just the Treasury that is worried about plunging Vol. Ironically, so is the Fed (why it’s ironic? read on).
Here is what the TBAC had to say on the topic of plunging volatility, market complacency and where we go from here (link):
Current State of Volatility
Monthly count of Bloomberg articles that contain the phrase “low volatilityâ€.
