Man Behind the MOVE Index Predicts Post-Election Furor in Bonds

(Bloomberg) -- Bond investors are bracing for historic yield swings in the days after the Nov. 5 US presidential election, according to the creator of a decades-old volatility gauge.

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Options prices anticipate that Treasury yields across maturities will move about 18 basis points immediately after the election, according to Harley Bassman, who created the MOVE Index of expected Treasury market volatility in 1994. For the rest of the rolling one-month period, the expected average daily move is 6 basis points, he said.

While moves of that magnitude have been frequent in recent years — particularly in 2022 and 2023 when the Federal Reserve was raising interest rates — it’s unusual for the options gauge to anticipate them, Bassman said.

“This is one of the largest ‘event days’ that I’ve seen in my career,” said Bassman, managing partner at Simplify Asset Management and a four-decade veteran of US bond markets. “It’s huge.”

With less than three weeks until Election Day on Nov. 5, former President Donald Trump, the Republican candidate, and his Democratic rival Vice President Kamala Harris, are locked in a tight race.

Trump’s surprise victory over Hillary Clinton in November 2016 unleashed a 37 basis-point daily swing in the 10-year Treasury note’s yield, the biggest in more than a decade. Trump lost his 2020 reelection bid, an outcome that took several days to ascertain owing to substantial mail-in voting during the pandemic.

The MOVE Index is calculated based on the implied volatility of one-month Treasury options. It jumped to 124 from 100 on Oct. 7, the biggest one-day move since 2020, as Election Day moved into the 30-day window it captures.

The index reached 127 on Oct. 15, the highest level since December. It was around 60 several weeks before the 2016 and 2020 elections.

Bassman said the last comparable “known unknown” event he could recall was in January 1991, as a United Nations deadline for Iraq to withdraw its forces from Kuwait approached.

“We don’t know what’s going to happen,” said Bassman. “That’s why people want to buy protection,” driving up proxies of expected volatility, he said.

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