Volatility trap: how gamma roused a market monster

The rates market is exposed to some of the same factors that caused equity volatility to explode in February

If US equity market volatility stirred on February 2 – wiping 2.2% from the value of the S&P 500 in a drowsy, unseeing twitch – it woke after the weekend, with a sore head. As trading drew to a close on Monday, February 5, a garden-variety sell-off quickly became something wilder.

Between 3.02pm and 3.17pm New York time on February 5, the S&P 500 fell 47 points and then immediately bounced back – a 3.58% round trip in the space of 15 minutes – while the Vix index of volatility derived from S&P

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