Treasury volatility pops as yields hit multi decade peaks

What moved the bond market

Bond swings are back in a big way. The ICE BofA MOVE Index, a popular Treasury volatility gauge, has surged about 29.69% this week, taking it to levels last seen in March, shortly after the Iran war began. If it adds even a little more on Friday, the weekly increase would top the April 2025 burst and become the biggest since 2022. That earlier April spike was linked to "Liberation Day," a period during which global markets were shaken by President Donald Trump's sweeping import tariffs.

The split across assets is striking. Equity, currency, and oil volatility remain mostly contained, despite Brent rising by almost $15 a barrel this month on renewed US-Iran hostilities. As crude eased, Treasuries steadied following Thursday's surge.

How traders reacted

Societe Generale SA's Adam Kurpiel, who leads rates strategy, said his team is keeping a neutral stance on US rates and waiting "for volatility to subside before initiating trades."

Benoit Gerard, a rates strategist at Natixis SA, said, "Yesterday was capitulation day." "There has probably been a change of mindset since this month's rate hike and the end of denial around the prospect for more rate hikes," he said.

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Market pricing and the path ahead

With oil climbing and US business activity accelerating to its quickest clip in over five years, traders are leaning toward additional Fed tightening. That has pushed five and ten year Treasury yields to their highest marks since 2007. The 30 year moved up four basis points to 5.52%, a peak not seen in over two decades.

Even after the brief respite as crude cooled, interest rate swaps indicate roughly a 70% probability of a quarter point increase in October, compared with almost no chance at the month's start. By the end of next year, swaps nearly fully price four hikes.

What this means for your portfolio

The calm you see in stocks and currencies is not showing up in bonds, and that gap traces back to how the market is resetting expectations for the Fed. If you own debt, plan to borrow, or keep cash on the sidelines, this is the rate backdrop shaping your next move.

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