Last Wednesday things got a little out of hand. Bankrate.com told us the rate on a 30-year fixed mortgage dropped below 4% for the first time since May 2013. The culprit? The 10-year Treasury note, which bucked around like a ticked-off bull, opening the day at 2.21%, reaching a low of 1.86%, and finally closing at 2.13%. Nearly one-trillion dollars in Treasury bonds traded that day, compared to an average this year of about one-third that volume. Two days later the 10-year rate climbed back to 2.21%, as if Wednesday never even happened. Volatility went on vacation last summer – just months ago The Economist wrote volatility had “collapsed” to near-historic lows – but clamored back recently. What gives? Fear of a “triple-dip” European recession is picking up, and increased U.S. regulation has made trading tougher. Together, Germany, France and Italy total 66% of Eurozone GDP. All three economies shrank in the second quarter of this year, and The Guardian tells us they are expected to contract in the third quarter, too. Germany, the stalwart of the bunch, will grow only 1.2% this year, revised down last Tuesday from 1.8%. To make matters worse, in the U.S. traders are complaining that regulations – like the Volcker Rule, which bans banks from trading their money – are preventing them from acting as shock absorbers during stressful market situations. Other regulations, like Basel III’s Liquidity Coverage Ratio, directly impact Treasury trading by forcing banks to hold more cash and safe assets. If volatility is permanently back from vacation, it is time to turn the TV off and focus on the long-run. Aside from re-balancing portfolios to maintain our risk targets, you will not see any knee-jerk reaction here.