Fed’s Williams says “we must think about how to shore up the Treasury Market so it can better endure the next big shock.”
That “big shock” headline and similar comments from Fed President Loretta Mester make us wonder. Does the Fed foresee a big shock on the horizon that could destabilize the Treasury markets? The only apparent events we can think of are a quickened pace of tapering or the coming debt ceiling debate in Congress.
The bond market is also worrying about something. The graph below charts the MOVE index. The index measuring bond implied future volatility is similar to the VIX index measuring equity volatility. Currently, it is on the rise and near the peaks of the last five years, excluding the spike in March 2020.
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