The MOVE Index – Bond Market Volatility and Its “Collateral” Effects


Retail investors around the world turn on the financial news channels and listen to strategist we have never met; we read newsletters written by writers who have never managed money; young investors scour Redit chat boards for ideas from people that have no names; and we often subscribe to investor services, sometimes for entertainment, but most often with the hopes of improving investment returns.

Most often we are presented with people’s individual opinions, hopefully based on research, not facts.  People we have never met, but who are presented as experts in their fields.  How often has that worked out for you and your portfolio?  Everyone has the right to voice their opinion about the stock and bond markets or our economy, but how often has listening to these opinions helped your portfolio?  As modern-day investors, we are bombarded with noise because information is now readily available at our fingertips, 24 hours a day, 7 days a week by way of smart phones and computers. Even with all this information available, remember there are no guarantees in the public stock and bond markets.

Before we get into this week’s topic, “MOVE lower, Stocks Higher?”, yes even bond volatility is looking lower not higher, at that’s a good thing on the “Good/bad” scale, please take a moment to click on the subscribe button and click on the notification bell so you will be alerted when our team uploads our latest content. We do have a new location for our Oak Harvest Investment oriented content.  You can find it by typing “Stock Talk with Chris” in the Google search window or going to the Oak Harvest You Tube channel and clicking on the drop-down tab labelled “channels” and clicking on “Stock talk with Chris”.

US Debt Default

US Debt default concerns. Geopolitical strife domestically and globally.  Bank runs in Europe and regional bank runs here in the US. I have never heard so many people so uniformly negative and confident in their economic opinions of forthcoming doom as I have this year.  Ignore the fact that almost all of them have been calling for doom for most of their careers and have been calling for an impending recession since the summer of 2022. It’s May 2023 and we are still waiting.  Many of those selling this story also like to discuss market volatility.  Against that backdrop, we touched on the subject of declining stock market volatility over the last 9 months in our April 28th video, Volatility “collapsing”, inconceivable.

Many strategist postings, research pieces, and commentary this year has tried to compare equity volatility and bond market volatility.  They’ve run comparisons of the spot VIX index versus the Merrill Lynch Treasury market bond volatility index, the MOVE Index.  These comparisons have been almost universally biased bearishly in their views.  Stock volatility is broken they say.  Look at how high bond volatility is.  Don’t buy stocks, they warn.  And yet?  Stock vol has been declining all yea and

against the backdrop of cyclically declining implied and realized stock volatility since last May/June 2022. The trend in both implied and realized vol in stocks has been down for over 9 months now.

Investors here’s the current chart of the MOVE Index.  An index we have discussed previously. It’s a Bank of America index that measures Treasury bond market volatility.  We like to follow this index as a measure of stress in the collateral markets. Why? Because if the “safest” and most liquid collateral in the world, US Treasury’s volatility is  trending higher, it forces leveraged players to sell assets, whether they want to or not.

Stock Talk Bloomberg Chart 5-19-2023

Conversely if the “safest” and most liquid collateral in the world, US Treasury’s volatility is trending lower, hedge funds, and those borrowing money see calmer waters. The lower collateral volatility incents higher margin borrowing balances. It no longer forces leveraged players to sell assets, whether they want to or not. They exhale first and start to slowly return to buying and levering portfolios.

Much as stock volatility peaked quarters ago, bond volatility looks to have now also “topped” and is close to breaking back below its own 50-week MVA. This has historically been bullish for stocks. The Move Index is now hovering right at this important level.  But yes, it is looking like it wants to break lower not higher.  Even against all the negative news surrounding the debt default timeline.  And investors, if and when this chart breaks lower, expect the equity markets to “miraculously” rally against the bewildered bearish masses on TV.

How to Handle The News

Viewers, when the economists in DC and strategists on TV start talking uniformly about recessions or chronic inflation, try as much as you can to walk away and take a deep breath.  The consensus is almost never correct.  And when it comes to asset allocation changes, most of the time, the best action is no action as this allocation was presumably set with a multiyear time horizon.  The best time to make changes to your asset allocation is when your emotions are low and market volatility is low as well.

Viewers, there is no perfect investment philosophy, there is no perfect trading tool, that is all weather, outperforming every stock cycle or in every economic environment.

At Oak Harvest, we have many tools that our advisors use to help our clients meet their retirement goals and objectives. These tools are both market based and insurance based, that we can use to meet your retirement goals. The future and stock markets are always uncertain and that is why our retirement planning teams plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at 877-896-0040 and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.