Volatility: Treasury Bonds Fluctuating Even More Than Stocks

Treasury bonds are seldom very volatile, but their fluctuation since the Federal Reserve began boosting interest rates last year has been remarkable, outdoing even that of the S&P 500.

The volatility of exchange-traded funds tracking long-term (20-year maturities and above) Treasury bonds and the benchmark equity index was wilder last year, when the Fed began its tightening, but for the Treasurys, it remains lofty.

According to a study by research firm Bespoke Investment Group, the iShares 20+ U.S. Treasury ETF, tracked over 200-day trading periods, still clocks moves of around 1% daily. That’s not the case for the stock ETF, the SPDR S&P 500 ETF Trust.

Upshot: Volatility for Treasurys nowadays outpaces that of stocks, Bespoke noted. “While average daily swings in both stocks and bonds have declined this year, volatility has been much slower to subside in the Treasury market than in the stock market,” the firm observed.

As Bespoke put it, “2022 was a year of extreme volatility for both stocks and bonds, and while things have quieted down a bit this year, volatility in the U.S. Treasury market remains extremely elevated.”

These days, “when Treasurys are swinging up and down (mostly down) 1% on a daily basis, that’s a very volatile environment,” the report stated. Aside from 2022, such energetic swings in Treasurys were brief and last seen during the pandemic’s 2020 onset and the Global Financial Crisis of 2008 and 2009 and its aftermath.

In addition to the Fed’s rate boosts, other possible factors in provoking higher Treasury volatility, which Bespoke didn’t mention, include Washington’s increase in debt issuance to fund higher federal spending, thus adding more bonds to be traded, and the popularity of Treasurys as a refuge investment amid turbulent times globally.