Skip to content
All library documents

Why Treasury Volatility Indices Have Less Traction Than VIX

Article Quant Q&A · Author: Tom Weston
Read the original

Summary

The document compares the adoption of the MOVE and TYVIX interest-rate volatility indices with the popularity of VIX. It distinguishes MOVE, which measures implied yield volatility using rates-market quotes, from TYVIX, which measured Treasury price volatility using a methodology conceptually closer to VIX and was later discontinued. MOVE’s reported weights emphasize the ten-year maturity, reflecting its benchmark role in over-the-counter options at the time the index was created.

Several market-structure explanations are offered for weaker demand and liquidity in Treasury volatility products: rates options are predominantly over the counter and volatility quoted, while equity index options are listed and highly liquid across strikes. Deep out-of-the-money Treasury options are less available, making replication of variance-style payoffs difficult; government bonds also create maturity and numeraire mismatch issues. The answer presents these as possible factors rather than a definitive explanation, and notes that futures exchanges were developing another volatility measure. It does not provide comparative trading or performance evidence.

Key ideas

  • MOVE represents implied yield volatility, whereas TYVIX represented Treasury price volatility.
  • Rates options trade largely over the counter and are commonly quoted in volatility terms.
  • Less liquidity in deep out-of-the-money Treasury options complicates variance-swap replication.
  • Government bonds can introduce maturity and numeraire mismatches in volatility construction.
  • The answer offers plausible structural explanations but no conclusive account of demand.

Tags

Fixed incomeVolatilityOptionsMarket microstructure
Full text
# popularity of MOVE volatility index vs. (strikeless) TYVIX indices


# popularity of MOVE volatility index vs. (strikeless) TYVIX indices












I have a question about rates volatility indices and how indexation around this space seems to be fractured and relatively illiquid in comparison to the explosive success of the VIX index in equities.

Is there a simple reason about why there should be a lack of demand or interest for such a product?

Also on a more technical level, I am curious why the MOVE index (which I believe is a simple survey of ATM quotes) has gained more traction than a more intellectually satisfying methodology similar in concept to the VIX (i.e. the replication of a varswap that samples OTM option quotes) such as the now discontinued TYVIX from CBOE.

Is there something about that market that makes market makers less comfortable about transparency in OTM products?

## Answer by AKdemy (score 3)

https://quant.stackexchange.com/a/63697

I really like that question and hope someone else also provides additional answers or insights.

MOVE measures the implied yield volatility. TYVIX measured price vol (less commonly used - so I guess flawed construction). The Price of Fixed Income Market Volatility may be interesting to read. The author(s) are directly involved in the creation of some of these indices.

I think there isn't a single answer:

- Equity is listed and options mainly price quoted. IR (any OTC market) is vol quoted, so you already have a clearer picture without sophisticated surface construction problems. Even MOVE index uses OTC although it was acquired by ICE. The weights are: 20% 2-Yr, 20% 5-Yr, 40% 10-Yr and 20% 30-Yr. Supposedly 10-Yr is overweight as it is the benchmark maturity for OTC options (based on volume estimates at the time of creation).

- Harley S. Bassman, the creator of the MOVE index, if I remember correctly, states that he thinks trading these is too challenging (cannot find this right now). The aforementioned authors also have a white paper Interest Rate Variance Swaps and the Pricing of Fixed Income volatility, where they explain that government bonds create unique issues with maturity and numéraires mismatches.

- Equity VS are predominantly Index swaps but these also trade at a basis to replication due to practical difficulties in replicating the actual log payout across strikes. SPX options are super liquid and available for deep OTM puts/calls. This is not the case for T-note options.

Last but not least, CME is building CVOL (Scroll down to see a short video). Side remark, their website offers a nice intuitive explanation of your statement "(i.e. the replication of a varswap that samples OTM option quotes)".

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.