I found this insight from Moody’s kind of interesting. I guess it’s not terribly shocking that more volatility means less risk taking, but I figured I’d pass it along:
“Relatively stable markets will be needed for the pace of mergers to expand. The VIX Index of volatility on S&P 500 rose sharply from 12.3 to 14.7 on February 20, as the minutes of the last FOMC meeting presented divergent opinions on the potential duration of QE3. Various political risks both domestic and foreign could also increase market anxiety, inhibiting large-scale financial transactions. The VIX had notably cooled from last year’s average of 17.8 to the present year-to-date average of 13.4. This is not far removed from the 12.9 average from 2006 through mid-2007 when deal making exploded.
An extended bout of broad market volatility will hurt the value of high-risk debt. One measure of
speculative grade credit risk did not immediately react to the latest Federal Reserve news, as the 472 bp
spread on the Barclays US High Yield Bond Index was unchanged from the day before. But upswings in the
VIX have led to substantial spread widening in the past (Figure 5). In 2011 the rise in the VIX from 14.8 in April to 43.0 in September led a widening of the high yield bond spread from 442 bp in April to 775 bp in October. The recent flare up volatility must subside for both merger activity and the general level of
investor risk-taking to intensify.”