MOVE index (orange line) is the US bond market fear index. Here it is compared with the VIX of the stock market, it measures the volatility on options traded on US Treasury Bonds, it represents a risk barometer to understand how to move the sentiment of operators on the US bond market. In particular, the MOVE index tracks the movement of implied volatility in 2-, 5-, 10- and 30-year US Treasury yields from 1-month option prices.
MOVE has the unique ability to provide a signal of the change in risk sentiment in the fixed income market and it tends to move between 80 and 120, with 80 representing a situation of extreme complacency and 120 representing a feeling of extreme fear. Movements towards extremes are quite rare. Movements below 80 preceded the recession of 91, the dot.com bubble and the recent credit crisis. A reading below 80 tends to portend a market problem/anomaly.
Since implied volatility is the cost of insurance, MOVE measures investors' willingness to purchase risk insurance. The lower this index, the lower the demand for risk protection. Furthermore, the MOVE can remain low for a long time before a market event occurs.
To get an idea of the sentiment of the stock and bond markets, large investors often monitor the relationship between MOVE and VIX. The dynamics of the ratio between these two volatility indices is therefore a barometer of what it provides, which could be the outflow from one asset class to another: a low ratio favors fixed income, a high ratio favors equity.
MOVE has the unique ability to provide a signal of the change in risk sentiment in the fixed income market and it tends to move between 80 and 120, with 80 representing a situation of extreme complacency and 120 representing a feeling of extreme fear. Movements towards extremes are quite rare. Movements below 80 preceded the recession of 91, the dot.com bubble and the recent credit crisis. A reading below 80 tends to portend a market problem/anomaly.
Since implied volatility is the cost of insurance, MOVE measures investors' willingness to purchase risk insurance. The lower this index, the lower the demand for risk protection. Furthermore, the MOVE can remain low for a long time before a market event occurs.
To get an idea of the sentiment of the stock and bond markets, large investors often monitor the relationship between MOVE and VIX. The dynamics of the ratio between these two volatility indices is therefore a barometer of what it provides, which could be the outflow from one asset class to another: a low ratio favors fixed income, a high ratio favors equity.