In a confirmation of the general macro environment, swaptions vol is back to the previous highs of late 2008. The VIX has gotten a lot of exposure both on ZH and other outlets and many, rightly or wrongly, tend to read it as a much broader indicator of risk and risk sentiment than it is intended to be. However the vol on swaptions has the potential to cause significantly more damage, especially with the increased volume of long risk currencies over the past few month. It's important to caveat by noting that the tail isn't going to wag the dog and many market watchers (including myself) are very dubious of rate hikes, especially in the deflationary environment and political climate we are seeing.

Of course, commodities have the potential to unravel the whole mess especially with the strong positions of AUD, NZD and CAD over the past few months. We're not quite at the coiled spring stage for the commodity currencies yet but there's a pretty strong case against much further upside. The market action and the strong correlations since March may make it somewhat of a moot point as the rising tide of SPY lifts all boats but it will be interesting to keep an eye on.

Swaption vol vs. VIX, courtesy of Citi