Interest Rate Volatility Poised for Bull-Run

Since the middle of the year when the 10y US-Treasury bond price peaked and yields touched their lows, interest rates have risen dramatically across most major currencies. The bulk of the rally in yields took hold after Trump’s election victory which promised far more inflationary policy; driven primarily by lower taxes and fiscal pump-priming. This tectonic shift in policy brings with it the prospect of significantly higher volatility in bond prices over the coming years. T3 publish a suite of volatility indices, a few of which focus on interest rate volatility. In the chart below we can see a plot of US-10y Treasury note volatility, which has risen markedly since its nadir in October.
Simon Ho

Triple3 Partners


The so called ‘YLDVOL’ index represents the 30-day implied volatility of the 10y US interest rate, expressed in annualized basis-points terms. This metric reflects the markets’ expectation of future volatility. A reading of 80.63 indicates that the yield of the US 10y treasury bond is likely to be + or – 80.63 basis points from where it is today (with a 66% level of confidence). That is a 70% wider spread than was being priced in back in October!

With the limits of QE seemingly having been reached and with the change in direction from Washington, we are likely to see a cyclical upswing in volatility across all asset classes; potentially most acutely in bonds.     

Article contributed by Triple3 (VIEW LINK)

Simon Ho
Simon Ho
Managing Partner
Triple3 Partners

Simon is the founding partner and CEO of Triple3 Partners, a specialist volatility solutions group. He is responsible for the development and implementation of the quantitative strategies. For institutional clients around the world we offer a...


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