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Chart of the week

Volatility escalates as yields march higher

As short-end rates march higher, this week’s chart looks at growing rate volatility from two perspectives: weekly yield changes and the MOVE Index.

September 30, 2022 | 2 minute read

Weekly yield changes, expected rate volatility grow together

Source: Bloomberg Finance, L.P., as of September 29, 2022. MOVE Index refers to the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE) Index.

  • Rapidly rising rates amid tightening monetary policy has been the primary driver of market volatility this year. To this end, investors cheered a brief reprieve this week as global rates declined, following the Bank of England’s attempt to restore market order in the U.K. by purchasing an unlimited amount of government bonds.1
  • In the U.S., shorter-dated Treasuries have seen the largest increase this year and have been at the root of the significant choppiness across equity, fixed income and real estate markets as the yield curve has become increasingly inverted.
  • This week’s chart shows weekly changes in the 2-year Treasury yield and the MOVE Index, which measures expected volatility within the Treasury market.1 Following a long period of relative tranquility, Treasury rate volatility has spiked this year while yields across the curve have marched steadily higher.
  • Indeed, some investors may welcome the higher yields across government and corporate bonds today as an attractive entry point relative to the past serval years. Yet markets also carry notably more volatility than during the past decade, when rates were either flat or declining. Consider that three of the top five weekly jumps in the 2-year Treasury yield over the past two years have taken place since August 2022.1
  • Against this backdrop, investors may be wise reconsidering the risk-return tradeoff of their core fixed income portfolio while also focusing on investments that have historically offered the potential to minimize volatility while also generating attractive return potential.

  • Bloomberg Finance, L.P., as of September 29, 2022. Based on 2-year U.S. Treasury yield. MOVE Index refers to the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE) Index.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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