Many market commentators have commented that 2017 will be the year of political risk. Ongoing uncertainty around Brexit, Donald Trump’s inaugural year as US president and a series of elections in continental Europe make conditions ripe for bouts of volatility.

This may be self-evident, but so far the credit markets are taking little heed. Realised volatility in the Markit iTraxx Europe, as measured by the VolX index, dropped sharply in Q4 and has remained around the 28-29% level this year. Indeed, the last three months have been the longest period of low volatility since March 2007, when the first signs of the US sub-prime crisis emerged. It was a similar story with the Markit iTraxx Crossover...