If you've paid any attention whatsoever to the ceaseless clangor over the lack of volatility in equities, you may be concerned that something is broken at the heart of the stock market. Sure, some of this may be alarmism bordering on superstition, and there is the trivial fact that when markets aren't moving that much, that's all we'll have to talk about. But we should at least agree that when some day trader in Florida can raise a hundred-mil to short the VIX, things might be a bit off-kilter.
But fear about the fear gauge doesn't show up in the fear gauge, and no amount of hyperventilating – no matter how august the hyperventilator – will make it act however a rational volatility gauge would act. So maybe the best way to safeguard our sanity would be to just accept the VIX and move on. Specifically, move on to MOVE:
Morten Steinsland, head of fixed income at Alfred Berg in Oslo, has been in the fixed income markets for three decades but the other day he saw the scariest chart he’s ever seen. The chart he’s looking at is the MOVE index, which measures Treasury volatility. And the frightening thing about it is that there’s no volatility. “This is the scariest graph, I see,” he said in a presentation in Oslo on Wednesday. “There’s really no risk left in the world.”
Sure enough, the MOVE is really low, historically speaking. But there's ample reason for it to be that way. The Fed has been coloring well within the lines and avoiding anything that could be construed as a sudden move. Trump's once-broad fiscal ambitions have shrunk. Consequently, so have inflation expectations. Geopolitical risks continue to crop up, but their effect is brief. No one cares about the yield on 10-year during a nuclear winter.
What's more interesting is what the MOVE's chill might say about various VIX theories. It's a truism that fixed income types are more sophisticated than stock traders, that the real way to grok what's going on in the economy is to follow the bond market, etc. And at times, the divergence in signals between stocks and bonds has been held out as a sort of cautionary note – bonds see something stocks don't. This is familiar.
But at present the MOVE is sending the same signals (if you want to call them that) as the VIX. Unless I'm mistaken (let me know if I am), there's no shorting the MOVE like there is buying XIV to short stock volatility – which, as one of the theories goes, is why the VIX is so low. Instead there's just a solid global economy and a broadly predictable Fed. Snooze.