Amid today's summit and Cameron's looming pitch to The Brits, the market is starting to take the risk of UK's exit from the EU seriously…
Various indicators across markets can be used as a 'sentiment' guide for fears (or hopes) about BREXIT, but, as MacroMan notes, perhaps the simplest and cleanest is the 3/6/12 month implied vol butterfly in GBP/USD, given that the referendum is widely expected for June, a little over four months from now.
Simply put, the butterfly is more negative (i.e., pricing the average of 3 and 12 month vol under 6 month vol) than it has been in the 20 year history of the Bloomberg dataset.
(Actually, there was a lower print on 9/11/01 , but Macro Man's taking it as read that ensuring valid closes for the cable vol curve wasn't a priority that day, so smoothed it out.)
The only period that remotely comes close was, funny enough, just over a year ago, when Britain was looking at the possible prospect of a hung Parliament.
One could easily argue that an existential issue such as Britain's membership of the EU should command a larger vol premium than a hung parliament.
So – simply put – if you thought the market was shrugging off BREXIT fears, think again… as some 'markets' are growing very concerned
via Zero Hedge http://ift.tt/1WsvLNy Tyler Durden