On the Move Revisited

An article within yesterday’s Wall St Journal read, “The Death of Volatility,” went on to discuss the non-volatility of the CBOE Volatility Index in respect of stocks ( the VIX,) regardless of the geo-political turmoil of late and the recent divergence witnessed between large and small-cap stocks.

We last wrote on volatility, albeit in respect of US interest rates, in late 2012, just after 30-year yields hit a 200-year low of 2.44%, and in early May 2013, as it spiked higher from 2.8% towards 4% pa, accompanied by a surge in yields of all stripes and  a sell-off in global stocks.

If we fast-forward to now and show an updated chart comparing the MOVE against 30-year yields, we can observe that, like its stock counterpart, bond volatility has gone to sleep, allowing yields to consolidate after the jaw-dropping 67% spike in US long-term interest rates.

MOVE 2 at 16 May 14

Note, however, that the MOVE and the yield remain above their historic lows and appear to be primed for the next spike higher. Our earlier commentary concluded that, “when volatility of any security hits an all time low, the odds increase substantially that it is about to pick up and likely pick up with a vengeance.” We stand by that conclusion.

A move above 120 appears likely, with US mortgage rates (tied to the 30-year yield) set to soar far above that 4.4% high last seen in 2011.

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2 responses to this post.

  1. […] Treasuries: “On the Move Revisited,” from May compared the ML Move Index, a measure of one-month treasury volatility, against the […]

    Reply

  2. […] it’s been a while since commenting on the volatility of US Treasuries’. It was in fact, “On the Move Revisited,” penned in May 2014, where move relates to the Merrill Lynch volatility estimate of the 30-year […]

    Reply

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