Wall Street’s volatility complex is roaring back to life as dovish central banks beat recession fears into submission, spurring the fastest return to market calm since 2012.

How long the serenity can last is the vexed question.

For now, hedge funds are amassing short wagers on equity price swings, while the Cboe Volatility Index sits close to a five-month low. Thanks to lowflation, interest-rate moves in the U.S. have fallen to a record as tranquility takes hold of global currencies.

Traders are in a bind: Bets on lower price swings offer diminishing rewards for the risk, but money managers banking on gyrations face a world of pain if a Goldilocks-lite economy keeps volatility at bay. Already this year, Argentiere Capital is said to have returned capital to investors after misfiring wagers on rising turmoil in its flagship $940 million fund.

As the likes of JPMorgan Chase & Co. see shadows of the cross-asset calm that preceded 2013’s Taper Tantrum, speculators riding the monetary put in the aging business cycle are in soul-searching mode.

“Why would an investor incur the risk associated with short-volatility strategies only to be compensated with a return comparable to a three-month Treasury bill?” said Pat Hennessy, head trader at IPS Strategic Capital in Denver, Colorado.

The Federal Reserve’s dovish tilt has driven all fear out of Treasuries -- boosting equity-investor confidence in the earnings yield and the discount rate for cash flows to suppress stock swings along the way.

Those punting on short-volatility trades “really need to be right” that monetary authorities will live up to their label as volatility killers, according to Benn Eifert, chief investment officer of QVR Advisors.

“Longer-term fixed income, currency and commodity implied volatility are mostly at or near their post-crisis lows,” he said. “The risk/reward of betting that they go even lower is poor.”

The link between the business cycle and the volatility market is far from straight-forward.

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