Chart of the week

Equity and Treasury markets agree: Expect volatility

The MOVE Index spiked from an elevated level while the VIX moved up, but from a decade-plus low.

October 6, 2023 | 2 minute read

Move and VIX in different territory

Source: Bloomberg Finance, L.P., as of October 4, 2023. MOVE Index refers to the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE) Index. VIX refers to the Chicago Board Options Exchange (CBOE) Volatility Index (VIX).

  • Markets reacted strongly to Fed policymakers’ recent pivot toward a higher-for-longer environment. Longer-dated Treasury yields have risen unrelentingly while equity and core fixed income markets staged a highly correlated decline, further calling into question core fixed income’s place as a portfolio diversifier.
  • Yet, equity and fixed income markets may be telling slightly different stories about their forward paths.
  • The equity risk premium steadily declined this year while the VIX Index, measuring expected equity volatility (black line), recently climbed off a decade-plus low.
  • Meanwhile, the MOVE Index— which measures expected Treasury volatility (orange line)— spiked, but from an already elevated level as markets increasingly expect choppiness driven by evolving Fed policy, growing U.S. budget deficits and moderating demand from foreign investors.
  • Though equity markets appear somewhat sanguine on the broader economic and market outlook, investors may consider heeding the Treasury markets’ signal pointing toward further volatility ahead.

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