The Federal Open Market Committee’s statement released after its October 28 meeting seemed the usual “on the one hand … and on the other hand.” The first hand held job growth and the second hand held inflation, or rather the lack thereof.

Yet investors in the Treasury market saw a hint that a federal fund rate hike could still occur at the FOMC’s December meeting. The 10-Year Treasury yield rose to 2.19, its highest value since September 21. This was sufficient to nudge TYVIX to 5.34, its highest value since the beginning of the month, and to lift the term structure of futures on TYVIX.  On the equity side, neither the S&P 500 nor VIX showed much of a reaction. The term structure of VIX futures hardly budged.

Speaking of even-handedness, note how the response of Treasury volatility to the Treasury yield is more symmetric than the reaction of the VIX to the S&P 500. Treasury volatility can rise following sharp moves of the Treasury yield, whether up or down. VIX on the other hand, tends to increase when the S&P 500 decreases.

Figure 1.  U.S. Treasury vs. TYVIX; VIX vs. S&P 500 nn103015Fig1

Weekly Update on Volatility and Volatility Futures

103015Fig2 Cash Indexes vs. Futures103015Fig3