If investors are looking for safety, why aren't they also seeking protection?
Over 2014 in general, and the past few weeks in particular, both the CBOE Volatility Index and 10-year yields have plunged. This is unusual because yields fall as investors buy Treasurys, while the VIX drops as investors pay less for S&P 500 implied volatility (or more generally, as they pay less for hedges on the S&P 500 as the chance of big moves is perceived to drop).
So while sliding yields are an indication of investors seeking safety, the VIX hitting a nearly seven-year low tells us that investors aren't willing to pay much at all for downside protection.
"It's very unusual," said Brian Stutland of Equity Armor Investments. "My theory is that low bond yields keep people chasing stocks with better yields, and thus keep liquidity in the stock market going."
For Jim Iuorio of TJM Institutional Services, it's just another sign of the times.
"Under normal market conditions, we would expect the VIX to go higher as Treasury yields move lower. We are not, however, under normal market conditions. We've seen a global liquidity glut push money into both stocks and bonds. And this has disquieted the traditional 'risk on/risk off' environment."