Week of 10/5/2026: Equity Markets Remain Resilient Amidst Continued Yield Surge

Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

• Cross-asset implied volatilities edged higher as cooler-than-expected core inflation and weak job growth momentarily quelled escalating bond yields. Interest rate volatilities notched another leg up with the MOVE Index advancing +13nms to 110 mid-week (3nms shy of its 1-year high) as the 30-year yield breached 5.63%, its highest level since 2002.
• Corporate bond volatilities have both continued to climb with investment grade (IG) and high-yield (HY) vols jumping from 6th and 11th percentile lows 2 weeks ago to their 79th and 84th percentile highs respectively. Note, however, that the tandem rise in implied volatilities for both IG & HY tiers masks a decoupling of duration and credit risk. In short, the rise of IG implied vols thus primarily reflects the same rate uncertainty that's driving the MOVE index spike, while the rise of HY implied vols has been driven primarily by investor demand for meaningfully more compensation for lower-quality credit risk.
• French sovereign credit spreads widened sharply over the past week, with the OAT-Bund spread reaching 140 bps and 5yr French CDS jumping to its widest levels since the 2011-2012 European Sovereign Debt Crisis. The widening spread of French debt vs the eurozone’s anchor credit suggests that traders currently price this risk as a France-specific rather than a general Eurozone credit concern.

Chart: Rise of Investment Grade (VIXIG) and High Yield (VIXHY) Vols to 80th Percentile Highs Masks Decoupling of Duration vs Credit Risk

^{Source: Cboe}

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