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VIX ETPs Pop as Market Volatility Rears Its Ugly Head

This article was originally published on ETFTrends.com.

The Cboe Volatility Index and VIX-related exchange traded products jumped as Thursday's steep declines continued for another day due to the ongoing fall-off in U.S. government bonds triggered by upbeat data on the U.S. economy and easing trade concerns.

On Friday, the iPath S&P 500 VIX Short Term Futures ETN (VXX) increased 3.7%, ProShares VIX Short-Term Futures ETF (VIXY) jumped 3.9% and the leveraged ProShares Ultra VIX Short-Term Futures (UVXY) , which provides the 2x or 200% daily performance of the S&P 500 VIX Short-Term Futures Index, advanced 6.0%. The VIX-related ETPs also tested their short-term resistance at the 50-day simple moving average.

Meanwhile, the CBOE Volatility Index surged 11.5% to 15.9 and briefly touched its highest level since late June.

The volatility index spiked as U.S. stocks retreated Friday, dragged down by rising yields on Treasuries after employment data showed job growth, though weaker than expected, still revealed the U.S. economy is still strengthening.

“It all has to do with interest rates going up. Since the financial crisis we have had an accommodative monetary policy that has injected a lot of liquidity into the markets and zapped volatility,” Massud Ghaussy, senior analyst at Nasdaq, told Reuters. “Now that’s being reversed, so all these overpriced valuations are coming down and we’re seeing the markets drop as interest rates are being normalized ... and high data names like tech sector will take the greatest hit.”

The rising yields on later-dated U.S. Treasuries is putting more pressure on u.S. stocks, which are trading near record highs, fueling anxiety over valuations, especially as we enter earnings season.

“We’re going to be seeing more volatility,” Tracie McMillion, head of Global Asset Allocation at Wells Fargo Investment Institute, told the Wall Street Journal. “The market is trying to assess: How do you discount stock prices when interest rates are going up?”

For more information on the CBOE Volatility Index, visit our VIX category.

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