What is behind the recent market instability is neither a Vol problem nor a trade problem, but a "years of pent up ultra low rates" problem, which after years of central bank vol suppression and market manipulation, is finally manifesting itself.

As Deutsche shows in the chart below, the background of the risk-off shift started in January, with the Trump administration's moves to depreciate the dollar ahead of mid-term elections, together with a shift of the type of interest rate rise from favorable to unfavorable, which in turn triggered the drop in share prices and the dollar. Deutsche describes the rise in rates that triggered risk-off as “unfavorable rise”.

Reflecting the sudden reflationary burst, 10y UST yields rose sharply from 2.32% on 22 November 2017 to 2.92% on 22 February. As a result, DB's US rates research team raised its end-2018 10y UST forecast from 2.95% to 3.25%, and sees further upside potential in the terminal real rate of Fed funds, the inflation risk premium and the term premium. It is also possible that a sudden burst of inflation could hit asset prices, as in the 1960s.

And while higher rates initially catalyzed the move lower in risk assets, stocks have subsequently been more influenced by the VIX.  Recently the S&P500's P/E (more specifically, its risk premium) was determined by VIX. Therefore, during a period when higher interest rates cause higher VIX, stock prices should fall. As DB explains, since 5 February, higher (lower) VIX has led to lower (higher) rates.