The clear and present danger headed into this week was Mario Draghi and the extent to which he would get it “wrong” with the messaging and “inadvertently” catalyze a continuation of the rates mini-tantrum we saw in the wake of Sintra.

Simple put, a rates tantrum has become one of the key risks facing markets and the drawdown in CTAs we got in the two weeks following the Sintra tantrum suggested that worries about systematic strats exacerbating selloffs aren’t entirely unfounded.

And while the FX market saw right through Draghi on the way to pushing the euro towards its August 2015 high, bonds apparently heard a dovish cooing. So, in the absence of another sharp move higher in bund yields (which would have immediately spilled over into DM rates across the board), tail risk seemed to recede:

Here’s BofAML to explain…

Via BofAML

Fat tails on diet

Following additional weak inflation data and – especially – multiple doses of central bank dovishness starting with Fed Chair Yellen’s testimony before Congress last week, a continued super-accommodative BOJ and culminating with the absence of a hawkish shift at the ECB meeting, tail risks from potential shifts in global central bank accommodation are declining.

While volatility was already subdued and had breached summer 2014 lows we are now seeing big declines in vol of vol.

Recall that higher vol of vol means “fatter” tails in the distribution of future returns – conversely declining vol of vol relative to vol, as we are seeing now, implies lower tail risks for the given present level of volatility.