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(Repeats without changes)
By Jamie McGeever
LONDON, Aug 8 (Reuters) - Financial market volatility is slumping across the board to historically - or, dangerously - low levels, potentially fanning the flames for a repeat of February's "volmageddon" explosion that sparked a 10 percent correction in U.S. and world stocks.
Then, major bond and currency markets remained reasonably insulated from the turmoil that swept through equities. They may not be so lucky next time around, because positioning in some cases is even more extreme than it is in stocks.
A breakdown of how speculative investors like hedge funds are positioned across U.S. futures markets shows that short VIX positions as a share of overall open interest are higher now than they were just before that record surge in February.
The net short position in 10-year U.S. Treasuries as a share of total open interest is the highest since 2010 and close to a record high, while specs' net long dollar bet as a share of open interest is the highest since May last year.
Dollar positioning might not seem too extreme. But the currency has traded in such a narrow range this summer that its daily 'standard deviation' is now the lowest this year, and closing in on historically low levels.
For an interactive version of this chart, click here: https://tmsnrt.rs/2vuqOPx
While global trade tensions are intensifying and some specific markets like Turkey's are experiencing acute problems, the overall calm descending on developed markets should come as little surprise.
There's been no big shock on the fiscal or monetary policy front, nor has there been an economic data bombshell that might herald a change of tack or policy U-turn at the Fed, ECB, BoE or BOJ. The Q2 earnings season has, on the whole, been much stronger than expected too.
In short, investors have had little reason to change their broadly benign view of the world: solid corporate profit growth, strong and steady economic growth, low inflation, and higher but well telegraphed U.S. interest rates.
The VIX index of implied volatility on the S&P 500 this week fell as low as 10.5 pct and within sight of November's record low, and the Mermove index of implied vol in Treasuries is now also within sight of November's record low.
As February showed, betting on continually low and falling volatility is fine. Until it's not. Positioning is so one-sided on many of these trades that investors may soon face potentially large losses when markets turn.
The VIX index's dramatic surge in early February was short-lived but the rise on Feb. 5, in nominal and percentage terms, was the biggest ever.