Chart of the week

Unrelenting inflation has exaggerated rate volatility

This week’s chart looks at daily yield changes on 2-year and 10-year Treasury yields as rate volatility in 2022 has dwarfed that of last year.

July 15, 2022 | 2 minute read

Daily changes in 2-year and 10-year U.S. Treasury yields

Source: Federal Reserve Bank of St. Louis, as of July 13, 2022.

  • This week’s consumer price index (CPI) report appeared to be a worst-case scenario for investors and the Fed, as it showed that inflation continued to rise unabated in June with price pressures increasingly broad-based. 
  • Stocks retreated with the report while rates went on a wild ride—briefly surging before plummeting as economic concerns outweighed the likelihood of a more active Federal Reserve. (The market odds that the Fed would enact a full 100-basis-point hike at its July meeting jumped with the CPI release.)
  • Rates’ quick whipsaw on Wednesday could be seen as a microcosm of what investors have been managing through for much this year. As the chart shows, daily rate moves on 2-year and 10-year Treasury yields have been extraordinarily volatile in 2022 and a decided change from the placid environment of 2021.1
  • The rate volatility on both the short- and long-ends of the curve has had a clear impact on equity and fixed income returns this year as the S&P 500 and the Agg have both seen massive declines of -19.6% and -9.9%, respectively, year to date.1 Meanwhile, the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE) Index, which measures expected rate volatility, recently jumped to its highest level since the global financial crisis of 2009.1  
  • Amid a volatile market environment with significant policy uncertainty, investors may be wise to focus on companies that have the potential to withstand a slowing economy while also emphasizing investments with limited correlation and downside protection potential.

  • Bloomberg Finance, L.P., Federal Reserve Bank of St. Louis, as of July 13, 2022.

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