What happened?

Synopsis

On Monday, the US stock market experiences its largest sell-off since 2011, marked by the second heaviest trading volume of the decade. Volatility, as indicated by the VIX index, spikes higher than during the Brexit referendum and the Greek exit crisis. This turmoil follows a sharp rise in stocks at the beginning of the year, despite steadily increasing 10-year Treasury yields. Concerns about inflation prompt investors to reconsider their stock positions, leading to a significant drop in stock values, erasing all gains for the year. Meanwhile, money flows back into bonds, causing bond yields to fall sharply. The situation raises alarms about the impact on those who bet against the VIX, particularly with products like pro shares exchange-traded notes, which face disastrous outcomes in after-hours trading. The repercussions extend to banks involved in underwriting these products, raising concerns about wider financial losses.