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What Does the Pick-up in Interest Rate Volatility Mean for Fixed Income Investors?

This post was written by Christian Brobst, Calamos Vice President, Portfolio Specialist.

As with other asset classes, market volatility in fixed income creates opportunity.

“In fixed income markets, I define risk as the possibility of permanent impairment of capital,” Calamos Co-CIO and Head of Fixed Income Matt Freund says. “In that context, volatility is not risk, and it’s an important distinction. Volatility often creates opportunity.”

The Merrill Lynch Option Volatility Estimate (MOVE) Index is one of the indicators we keep an eye on as a measure of interest rate volatility. The MOVE index represents short-term (1-month option) volatility on the 2-year, 5-year, 10-year, and 30-year parts of the Treasury curve.

Like many measures of market volatility, the MOVE Index had been moving on a general trend lower throughout 2017 to hit an all-time low of 44.0 in early November. Volatility tends to be mean-reverting over longer time horizons. Moreover, the moves higher tend to happen quickly, while moves lower are often more gradual (see chart below). When volatility spikes, agile active managers who are constantly engaged with the market are well positioned to take advantage.

the MOVE index a measure of interest rate volatility

While we are still below the 5-year average of 68.5, since January 16, 2018, the MOVE index has increased by +21.2%, closing on January 26, 2018 at 55.6 (see below).

opportunity the MOVE index has increased 21% since Jan 16

This recent step higher has coincided with a move higher in the more closely followed VIX index for S&P 500 volatility, but we note that the 15-year weekly correlation between the two volatility indices is only +0.33. This indicates there are periods when volatility-driven opportunities might exist in fixed income markets and not equity markets, and vice versa.

The MOVE index is just one indicator of fixed income volatility. It is limited to the Treasury option market and does not take into account volatility of credit spreads or other aspects of fixed income markets that can create additional opportunities.

Advisors, for more information, please talk to your Calamos Investment Consultant at 888-571-2567 or email

    Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-800-582-6959. Read it carefully before investing.

    Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.

    The Merrill Lynch Option Volatility Estimate (MOVE) Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options which are weighted on the 2, 5, 10, and 30 year contracts.

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