How Volatile Are US Treasury Bond Yields?
/The volatility in global bond markets have generated quite the discussion among market participants. So much so that BlackRock has indicated publicly that their old risk models need to be redone.
BlackRock was speaking specifically about the European sovereign bond market but in light of the recent volatility in US treasuries I wanted to contextualize what's happening domestically. Especially considering I went out on a limb regarding the relative-value offered by the US long bond I thought this topic would warrant further study.
The shaded region represents the 'Great Recession'
This chart represents annualized rolling volatility of the 30, 10, 5 year treasury bonds. Examining the chart there has been a clear spike in volatility across all three maturities since late 2014.
Taking this line of inquiry a step further I wanted to examine yield volatility as if I was an active fixed income portfolio manager. To do this I plotted the weekly log yield changes of each maturity. For reference I added horizontal lines representing the +/- 2 standard deviation threshold for each maturity.
On first glance it's clear the yield changes have been ulcer inducing since the beginning of the year, especially in the 30, and 10 year maturities. However the yield changes in the 5-year are more subdued in comparison. This fits the narrative that fixed income PM's are moving to shorter durations in anticipation of increasing inflation risks.
