The level and direction of interest rate volatility can have broader impacts on asset markets. Since the end of July, Treasury volatility remained elevated, and Treasury yields and oil prices moved higher, while equities and gold moved lower. More recently, volatility across rates, oil, gold, and equities has started to accelerate again.
One of the ways we can gauge whether the upward movement in Treasury volatility could continue is by monitoring the level and direction of volatility across different asset classes. Spikes in a range of volatility measures within high-volatility regimes often coincide with periods of broader market disruptions and can lead to a slowdown in normal financial and market activity. Ultimately, it is the confluence of these volatility dynamics that can work against equity performance.
On the fixed income front, Treasury volatility, as measured by the MOVE Index, has been re-accelerating since mid-September, notching 130.2 as of yesterday’s close. In periods of higher interest rate volatility, the pricing of assets can likely become more difficult, which is why we continue to watch this market signal.
Looking at WTI Crude Oil volatility (OVX), we also observe an acceleration since mid-September, recently moving passed 40. Over that same timeframe, gold volatility (GVZ) has moved above 16 in the last few days.
Within equities, the VIX has also been increasing since mid-September, closing at 17.9 yesterday and moving closer to 20 today.
We will continue to monitor the pace and level of volatility considering what it could mean for the likely direction of rates and equity markets.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Economic Analyst
Boyd Watterson Asset Management, LLC