The VIX, trading at 21.71 currently, has spiked up 26% during the last 30 days.
Considering its still down 5.2% when viewed on a YTD basis, that 26% spike appears to be nothing more than mean-reversion when viewed relative to its long-run average of 20.
Yet, the current levels of VIX when viewed against its Sep 14 low of 12.82 translates to a stunning 70% spike!
Speaking metaphorically, a 70% spike in the VIX (also referred to as a Fear Gauge) is akin to the markets tracing an icy finger down an investor’s spine.
Well, despite that spike in VIX, there aren’t any visible shivers in the US Equity Markets (the US-matched-cash-equity-volumes has not spiked up substantially, its unlikely to top 42 billion shares by close of this month, and could be well below the record high of 49.79 billion shares traded in March during the banking crisis when the VIX spiked to 26.52, its highest ever this year, unless of course the markets experience an extraordinary break in these last few days of October).
One possible explanation for this muted dread appears to be the investor’s fascination with a newly discovered pocket of uncertainty: the whipsawing treasury yields and a budding interest (forgive the pun!) in VIX’s nondescript forgotten sibling – The MOVE Index.
In simple terms, what the VIX is to stock price volatility, the MOVE is to interest rate volatility.
The MOVE index calculates the implied volatility of U.S. Treasury options using a weighted average of option prices on Treasury futures across the 2-, 5-, 10-, and 30-year maturities.
While MOVE isn’t as mainstream as VIX (which is puzzling since the US stock market sizes up to $46 trillion in market cap while the global bond market sizes up to $133 trillion) it’s emerged from a really long winter – a winter characterized by Central Banks worldwide guiding ‘interest rate certainty’, negative real yields and unlimited QE to supress long term yields.
Invert those long-term Central Bank moves and you realize why we are perhaps witnessing the very beginning of spasmodic moves (what is with the puns today 😃) in the MOVE index.
The MOVE index trades at 135.45 currently, its highest level since late 2008.
