For many asset owners with balanced portfolios, U.S. Treasuries have long provided protection against equity downturns. But a sharp rise in bond market volatility suggests that assumption may no longer hold.
Since the Trump administration’s surprise announcement of new tariffs last week, long-dated U.S. Treasury yields have risen, even as equity markets declined. At the same time, the MOVE Index, Wall Street’s key gauge of bond market volatility, jumped from 101 to 139.9, flashing a warning signal to investors who rely on Treasuries for diversification.
Yields climb despite equity selloff
The rise in yields comes even as equity markets corrected. It marks a rejection of the narrative coming from Washington, say analysts familiar with the index. On Sunday, Treasury Secretary Scott Bessent described the equity correction as “healthy” and reiterated that lowering long-term interest rates is a key goal to support debt sustainability. For the Trump administration, lower yields as a sign of policy success.
“The bond market is calling the bluff of President Trump.”
Ritesh Jain, founder of Pinetree Macro.
Ritesh Jain, an influential global macro strategist, trend watcher and advisor to family offices and investment companies from India, sees a different process shaping the Treasury market. “Ten-year yields briefly dipped below 4 percent, but rebounded even as equities declined,” he said, referring to the market reaction to Trump’s tariff announcement. “Typically, bond yields fall when stocks drop. Not this time.”
Investors are demanding a higher term premium for long-dated U.S. government bonds, Jain told Investment Officer, as economic uncertainty and fiscal risks mount. Monday’s MOVE Index spike reflects this rising discomfort with duration and debt supply, he said.
Bond market rejects Trump’s narrative
“The bond market is calling the bluff of President Trump,” said Jain, who once managed seven billion dollars as CIO of the Tata Mutual Fund and since then founded Pinetree Macro and Nrizen.
After an initial drop end of last week, ten-year Treasury yields on Monday rebounded toward 4.5 percent, a good sixty basis points above Friday’s lows. Jain warned that if yields climb to 4.75 or 5 percent, the MOVE Index could spike to 150, a level last seen during the UK gilt crisis in 2022.
“If I were a central banker I would be extremely concerned.”
Ritesh Jain, founder of Pinetree Macro.
“That would indicate severe stress in the Treasury market,” he said. “Liquidity could dry up and bid-offer spreads widen. If I were a central banker I would be extremely concerned. UK prime minister Liz Truss lost her PM position in 2022 because MOVE index touched 140 and UK bonds went bidless. We are closer to those levels in MOVE today.”
MOVE, the VIX of bonds
The MOVE Index, short for Merrill Lynch Option Volatility Estimate, is derived from options prices across Treasury maturities. Often called the ‘VIX of bonds’, it tracks interest rate volatility and is central to risk management and asset allocation.
MOVE-index on the move again
These days, the index signals deeper structural concerns. This is not about the Fed, said Diego Vallarino, quant/data analyst and independent advisor to financial firms, but about uncertainty around the fiscal-monetary compact and the volatility of the term premium.
“This aligns with a shift from front-loaded monetary dynamics to structurally unstable fiscal expectations,” he told Investment Officer.
In Vallarino’s view, the “meaningful bear steepening” of the U.S. yield curve, particularly the widening thirty-year versus two-year spread, is no longer driven by growth expectations. It now is a signal that investors no longer see the long end of the curve as safe.
Like Jain, he sees echoes of the 2022 UK gilt crisis, when the long end failed to serve as a macro hedge and became the focal point of market dysfunction.
“This mirrors prior episodes of fiscal-duration stress (e.g., 2022 UK gilt crisis), where the long end failed to serve as a macro hedge and instead became the locus of market dysfunction.”
Diego Vallarino, quant analyst.
“The absence of compensatory market-making depth or sovereign backstop mechanisms increases the risk of a non-linear repricing in long-dated Treasuries, and that is a key concern for duration-sensitive portfolios,” Vallarino said.
‘Meaningful bear steeping’ of the Treasury yield curve
MOVE/VIX divergence signals broken hedges
Vallarino explained he tracks the MOVE/VIX ratio using a Z-score to quantify how far it deviates from historical norms. A deeply negative Z-score, as seen now, suggests a breakdown in typical cross-asset volatility patterns. In plain terms, Treasuries and equities are no longer moving in offsetting ways. Volatility in one is no longer a hedge for the other.
“A deeply negative Z-score, like the one we observe now, signals a breakdown in typical cross-asset volatility dynamics,” he explained.
Negative Z-score signals breakdown in volatility dynamics
For investors, the implications are significant. First, Treasuries’ traditional hedging role is weakening. “When bonds stop offsetting equity risk,” Vallarino said, “diversification assumptions begin to fail. That challenges the logic of many multi-asset strategies.”
Fed seen responding if MOVE hits 150
A rising MOVE, Jain added, will almost certainly trigger a response from the Fed, unlike a rising VIX. “At a MOVE of 150 investors should increase their risk allocation although their risk managers will be breathing down their neck to reduce the risk in portfolio.”
“When bonds stop offsetting equity risk, diversification assumptions begin to fail. That challenges the logic of many multi-asset strategies.”
Diego Vallarino, quant analyst
What’s more, volatility is now driven by structural forces, Vallarino said. “Rather than reacting to short-term macro data or Fed signals, markets are grappling with fiscal policy, trade imbalances, and bond issuance,” he said. “This is a different regime, one that demands greater vigilance in how we interpret volatility itself.”
So does this support the ‘the market is always right’ thesis? No, said Vallarino, “but it does suggest that markets are incredibly efficient at signaling when traditional frameworks stop working—which is, in many ways, even more valuable.”