The “Fear Index” For Bonds Has Markets On Edge

No doubt about it: Fixed-income investors are spooked.

Volatility in U.S. Treasuries has soared this year. As seen in the chart, the 10-day moving average for the ICE BofAML MOVE Index–essentially the volatility index for the bond market—this week hit 126. That’s just slightly lower than the index’s recent high back at the start of the pandemic, and significantly higher than its long-term average of 66 over the past decade.

In addition, compared with the last time the 10-year Treasury yield was this high– February 2018–bond market volatility was only around 55.

As we noted last week, high volatility is making investors cautious, and likely preventing them from capitalizing on the higher yields offered by long-term bonds. As long as bond market volatility remains this elevated, we expect to see continued volatility in equities as well—particularly mega-cap tech stocks and the most expensively valued growth sectors—and other asset categories.

What has to occur for the MOVE index to fall? Certainly investors need to feel they have more clarity from the Fed on its interest rate policies and the path it will take as it seeks to engineer a soft landing. Of course, an easing of inflationary pressures will also be necessary to mitigate some of that volatility.

For now, markets will likely be taking their cues from the bond market’s behavior.

For investors who may be spooked by the current volatility or those in the pre-retirement stage, Horizon offers Risk Assist®: A disciplined risk mitigation strategy designed with the goal of protecting wealth, reducing investor anxiety and combating poor investment decision-making. For more information on Risk Assist, download the strategy sheet here


This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.

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