OFR Volatility Stress

## What this measures

The contribution of market volatility to the Office of Financial Research's Financial Stress Index. OFR standardises about ten volatility measures and weights them into one reading: equity-index implied volatility for the US (VIX), Europe (V2X) and Japan (Nikkei), US and euro interest-rate swaption volatility, euro and yen currency-option volatility, an emerging-market volatility index, and realized volatility of Brent crude.

## Why it matters

Volatility is the price markets put on the unknown. When it rises across asset classes at once, investors are paying up to protect themselves and risk is being cut; when it sits low everywhere, markets are pricing a calm future. Reading several markets together shows whether fear is confined to stocks or spreading into rates and currencies.

## How to read it

Zero is average stress over OFR's history. Positive readings are more volatility than average and negative readings less. It peaked above 5 in March 2020 and fell near −2 in the calm of late 2017. Compare a reading with its own history rather than a fixed threshold.

## What it does not say

It is not the VIX and will not match it day to day (correlation about 0.75 on levels, 2016–2026). When rates or currency volatility is high while stocks are calm, this reads higher than the VIX would. It measures what markets price, not what later happens.

## Source

Office of Financial Research, US Department of the Treasury, OFR Financial Stress Index, volatility category (financialresearch.gov/financial-stress-index). A US government work, public domain. It replaces Cboe's VIX, which reached us through FRED under permission granted to FRED, not to Palanor.