The Treasury Options Volatility Force Awakens

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Until the equity market’s abrupt correction in late January, Treasury options were in a state of deep slumber, with volatility near record lows for 2Y, 5Y, 10Y and 30Y Treasuries.  Over the past month, Treasury options volatility has staged a mini-spike that seems significant by recent standards (Figure 1) but is unremarkable when viewed from the longer-term perspective of Merrill Lynch’s “MOVE” index (Figure 2).  Even after the recent break out, volatility in Treasury options remains much closer to historic lows than to its average levels.  The record highs of 2008 are a distant memory.

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