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.