The Federal Reserve's recent hawkish rate cut has stirred uncertainty across financial markets, leading to a sharp increase in equity volatility. The decision to lower rates by a quarter point, while indicating only two additional cuts for 2025, has prompted investors to reassess their monetary policy expectations. This cautious stance has driven the two-year US Treasury yield up by over 10 basis points, making bonds less attractive and contributing to a sell-off in both stock and bond markets. The strengthening US dollar, buoyed by higher yields, has further exacerbated market volatility, as USD-denominated assets gain appeal among foreign investors. This environment of heightened uncertainty is mirrored in the CBOE Volatility Index (VIX), which has surged to 27.71, reflecting the market's reaction to the Fed's approach.
The VS TR -1x Short VIX Futures ETF (SVIX) experienced a significant decline, dropping 15.28% to $23.96 as of 16:40 on Wednesday, December 18.