It appears we are approaching another well telegraphed rate hike at the conclusion of the FOMC meeting scheduled next Tuesday and Wednesday. I got a question via email that got me digging into market volatility around the last two hikes. Both were widely expected, but did occur in December (2015 and 2016).
The two charts below shows price action for VIX and TYVIX leading up to and following the last two FOMC meetings where a rate hike resulted.
VIX was two different animals in 2015 and 2016 as the equity market was experiencing higher volatility in 2015 based on market concerns leading into 2016. The red line below represents 2015 while the blue line is VIX price action for 10 days leading up to and following the FOMC meetings. The only real similarity is that volatility was lower in time after the meeting. This may be due to a lack of risk events in the near term post FOMC or maybe partially impacted by the holiday season.
TYVIX is a little more interesting. In both cases we get some sort of a rise leading up to the FOMC meeting and then a drop within a day or two after the rate hike announcement. It would make sense that TYVIX would be more sensitive to the market action in response to a rate hike than VIX and a small pattern appears below.
So in a little over a week we’ll see how the markets digest our third in a series of expected rate hikes from the FOMC. I’ll be keeping an eye on VIX and a closer eye on TYVIX as the announcement approaches and as the markets react accordingly.