MOVE, VIX, Get Out the Way

The Merrill Lynch Option Volatility Estimate (MOVE) Index reflects the level of volatility in U.S. Treasury futures.

In effect, the MOVE Index is considered the "VIX" of the bond market, reflecting implied volatility and regimes of higher volatility in general where the bond market is unhinged. In addition to the action in high yield corporate (HYG ETF) and junk bonds (JNK ETF) selling off as high yield rates blow out, we also have rates spiking across the curve, especially on the long end, at a fast clip. This abrupt rally in rates is sending the MOVE Index higher. Recall that it is the "rate of rates" which can cause problems for markets, as opposed to a slow grind higher in rates. We are clearly seeing the former in lieu of the latter, at this particular juncture. 

However, things get murky when we see that equities remain largely unperturbed, not only immune to poor breadth and weakness in consumer/housing stocks in recent months, but also with the Nasdaq printing fresh highs today amid a VIX quite subdued in the mid-teens. 

So, what gives?

In prior instances where MOVE spiked like this we have seen the VIX explode well into the 30s. But that has not come close to materializing this time around, at least not yet. My view is that this is yet another notch in the belt for arguing equities remain uniquely complacent amid such glaring risks and divergences. 

While bulls argue that equities are fully omniscient and have discounted any bad news, whatsoever, my view is that equities have a long and distinct history at major turning points of being the last asset class to "get it." There are other, more vulgar ways to get that point across. But you can see the argument I am getting at, as rates on the 10-Year nearly touched 5.35% earlier which marks multi-decade highs.