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Is This An OH $H!T Moment? The $MOVE Index...

Watching March Madness all Sunday (hit a huge parlay on Friday btw, $25 to $2200, no big deal) with my dogs on the couch and then I get an alert on my phone about the 5 Major Global Central Banks announced they are going to work together to increase the frequency of the dollar funding. Essentially what they are doing is increasing the number of times that the swap operations happens from once a week to daily.

After this announcement and reading more into it, I got into a rabbit hole on my phone in terms of the history of this tactic, how it played out previously, and what this means for the US Economy vs. the rest of the World's. In my rabbit hole, I came across something I haven't seen before which was the MOVE Index... specifically this quote in this article about the UBS/Credit Suisse situation:

The 'MOVE' index of Treasury market volatility posted its biggest weekly rise since 2008, and fourth-largest since the index was launched two decades ago

What exactly is the MOVE Index?

It measures the US Interest rate volatility and tracks the movement in US Treasury yield volatility implied by the current prices of 1 month OTC prices.

MOVE can be used, in hand with other indices like VIX, to provide an early "warning" of changing risk sentiment in the bond market, financial market, and AHEAD of the equity markets. This index was created in 1988 and since then, it has had a very solid history of signaling changes in market sentiment.

What do bonds have to do with SPX?

Historically, there is a correlation between the bond and equity markets. One good reason is that any change in the level of interest rates highly affects both markets.

  • When interest rates are going up, or expected to go up, bond prices and equity prices generally fall

  • When interest rates are going down, or expected to go down, bond and equity prices generally advance

Below you can see the correlation between MOVE and SPX:

Now look at where we are right now on the MOVE Index vs. what happened during those times on SPX.

We are at a very alarming and pivotal point on the MOVE Index chart right now... with this much uncertainty going into this week, with the banking decision on interest rates coming on Wednesday as well, I expect a rocky, volatile week.

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