The bond market is 'sounding an alarm', but Bitcoin is quiet… What does the divergent volatility mean?

▲ Bitcoin (BTC), US Dollar (USD) / ChatGPT generated image ©

While volatility in the global bond market is rapidly surging and sounding an alarm, Bitcoin (BTC) and the US stock market are maintaining an unusual calm. The widening gap in volatility between the bond market and Bitcoin/stock markets is drawing attention, as a sharp rise in government bond yields typically dampens investor sentiment for risky assets.

According to investment media FXStreet on September 25 (local time), the MOVE Index, which indicates the implied volatility of the US Treasury market, surged from approximately 80 on Tuesday to 104 on Thursday. This is the highest level since it recorded 199 last March. In contrast, the Volmex Bitcoin Implied Volatility Index (BVIV), which represents the expected 30-day volatility in the Bitcoin options market, is around 37, close to its year-to-date low of 35.

The US stock market shows a similar trend. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which tracks the implied volatility of the S&P 500 index, remains around 14, near its year-to-date low. While demand for hedging against interest rate fluctuations has significantly increased in the Treasury market, the same level of volatility expansion has not yet appeared in the Bitcoin and stock markets. The media analyzed that this divergence demonstrates the underlying strength of the Bitcoin and stock markets.

Tension in the bond market is coupled with rising global government bond yields. The Middle East war has complicated inflation forecasts due to rising international oil and diesel prices, and uncertainty surrounding how much more central banks need to tighten monetary policy has also grown. The US 10-year Treasury yield surged to 5.2% during Thursday's trading before slightly falling to 5.163%. Increased Treasury volatility typically tightens financial conditions and acts as a factor that discourages investment in risky assets.

In particular, the correlation of volatility across different asset classes is unusually diverging. As of the recent 20 days, the correlation coefficient between VIX and MOVE has fallen to -0.06, turning negative for the first time since April 2024. The correlation coefficient between Bitcoin BVIV and MOVE recorded -0.37, one of its lowest levels in several years. This means that as bond market volatility increases, Bitcoin's implied volatility actually remains near its year-to-date low.

Last March, when MOVE was at a similar level to the present, the S&P 500 index was around 6,350, but it has since risen by about 21% to 7,704. During that time, the cost bond investors paid to hedge against interest rate fluctuations increased significantly. While Bitcoin and the US stock market have shown stable trends despite the bond market's instability so far, the rapid expansion of volatility in the Treasury market, which is the foundation of global finance and credit creation, has emerged as a variable that risky asset investors should closely monitor.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*