Tuesday, June 2, 2009

The Spiking Vol Of Treasuries

Many have recently been surprised by the spiking volatility in Treasuries and have queried how best to keep track of these daily swings. As Zero Hedge points out almost daily, the 2s10s chart is much more exciting than the boring flatline that equities have become. A good and simple way to keep track of Treasury vol, is through the Merrill MOVE index. The MOVE definition: "yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of volatilities on the CT2, CT5, CT10, and CT30."

I present the 6 month chart of the MOVE index below: obviously the spike in daily Treasury vol has not gone unnoticed: just yesterday MOVE had a 15% one day rise. As traders relish volatility and hate flatlines, is it possible that soon all the intraday action will migrate out of equities and go into treasuries?

An interesting overlay is that of MOVE with the VIX. Curiously while the two have historically correlated with a decently high R, the action over the past 2 weeks is a very distinct outlier. Could there be something more here than simple inflation/China fears? Zero Hedge will inquire further.

VIX - MOVE correlation chart:

Sphere: Related Content
Print this post
blog comments powered by Disqus