Many of us are familiar with the VIX Index, commonly referred to as the “Fear Index”. The VIX Index is a measure of “fear” as that relates to equity markets and typically rises during periods of falling prices, sometimes sharply during more precipitous declines.
Did you know that there is a similar index that measures fear within the bond market? That index was developed by Merrill Lynch and is referred to as the “MOVE” Index. The index rises as concerns grow that interest rates are on the march higher. The index will rise more sharply when there are fears in the market that rates may be headed significantly higher as was the case during the 2013 Taper Tantrum.
Since last week’s election, the bond market has experienced what could be referred to as a Trump Tantrum resulting in the index immediately spiking to near 90 before pulling back to its current reading of about 80. The long-term index average is closer to 70. So far, this most recent surge seems comparatively modest and leads me to believe that the bond market has quickly adjusted to revised expectations of the Trump Effect, however, expectations and reality are 2 different things and it seems the bond market may have moved ahead of itself.
The MOVE Index can be a useful tool to measure bond market sentiment and should bear close monitoring in the days and weeks ahead.
Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk, often referred to as the "investor fear gauge." The Merrill Lynch Option Volatility Estimate (MOVE) Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options which are weighted on the 2, 5, 10, and 30 year contracts
Any opinions are those of David Olnick and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Municipal bond interest is not subject to federal income tax but may be subject to AMT, state or local taxes. Income from taxable municipal bonds is subject to federal income taxation; and it may be subject to state and local taxes.Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax advantaged status. Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Please consult an income tax professional to assess the impact of holding such securities on your tax liability. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investments mentioned may not be suitable for all investors.