The $22 trillion U.S. Treasury market, historically seen as a staid corner for risk-averse investors, has been on a turbulent ride for the past month, with a level of volatility ordinarily reserved for riskier assets like stocks.The ICE BofAML MOVE Index, which measures volatility in the bond market, is still near some of its highest levels of the year, despite a steep dropoff since Tuesday. It’s currently hovering above its two-year average, though the gauge is well off its March 2020 peak reached at the onset of the COVID-19 pandemic. Meanwhile, the volatility spread between iShares 20+ Year Treasury bond ETF /zigman2/quotes/206026314/composite TLT +0.81% and the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY +1.30% has reached “extreme levels,” according to Bespoke Investment Group.
Persistently higher U.S. inflation, coupled with an ongoing pandemic and the long-anticipated tightening of monetary policy by global central banks, are the biggest drivers behind increased uncertainty for bond traders. The 10-year BX:TMUBMUSD10Y and 30-year yields /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y 0.00% both fell by more than 30 basis points from Nov. 22 to Dec. 2 before recovering this week.The volatility is coming at a time when pandemic-era fiscal and monetary stimulus is in the process of being removed, suggesting volatility is only likely to continue. W<STRONG>ant intel on all the news moving markets? Sign up for our daily Need to Know newsletter. Use <INTERNET LOCATION="EXTERNAL" URL="https://www.marketwatch.com/newsletters?sub=700&mod=article_inline&mod=article_inline&mod=article_inline&mod=article_inline">this link to subscribe</INTERNET>.</STRONG> “Volatility is generally synonymous with uncertainty and so when you have a virus variant, elevated inflation, and the Fed shifting toward a tighter policy stance all at the same time, that tends to rock the boat,” Paul Hickey, Bespoke’s co-founder, said via phone on Thursday. “One of them is enough, but we’re getting three at the same time.”That volatility is likely to endure, he said, with the next short-term catalysts likely to be Friday’s consumer price index report for November and the Fed’s policy update on Wednesday. Longer-term, the central bank’s actual tapering of asset purchases and steps toward higher rates will also probably act as further triggers, Hickey said. In a note released Wednesday, Bespoke wrote that “the daily moves in Treasuries recently hasn’t been the type of action that helps put you to bed at night.” Most Treasury yields turned lower on Thursday as investors await Friday’s CPI data which is expected to see inflation rise to 6.7% year-on-year for November, the highest in about 40 years.