Let’s not bury the lead, there is only one concern in the market presently, and that is the declared war in the Middle East. But before Hamas crossed the border on October 7, the story of the month in the bond market was a big one:
1) A huge one-month rise of 63bps in the thirty-year rate, briefly kissing 5.00% 2) A similar jump in the MOVE Index to 141 3) A corresponding flattening of the 2s vs 10s Yield Curve from -72bp to -28bps
These are big moves for a market where the underlying economic indicators have not changed too much. While there can be many explanations, the obvious one is that the market is finally conceding that the FED will not be cutting interest rates any time soon, and so the new mantra is “higher for longer”.
Our main curiosity is why the stock market is a sea of calm. The usually related MOVE and VIX have massively diverged with the MOVE near crisis highs, while the VIX is trading well below its long-term average.
Figure 1: MOVE Index vs. VIX IndexSource: Bloomberg
GLOSSARY
Basis Points (bps): A common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.
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