Volatility on the Rise: Is the Corporate Bond Market in Danger?

The ICE BofA MOVE Index, commonly referred to as MOVE, is a measure of volatility in the US Treasury bond market. When the MOVE index rises, it indicates that there is greater uncertainty and risk in the market. The following chart is suggesting that the recent surge in bond volatility, as measured by the MOVE index, highlights a broader concern with corporate credit spreads.

Corporate credit spreads are the difference between the yield on corporate bonds and the yield on US Treasury bonds. They represent the additional compensation investors require to hold the credit risk of a particular company. When credit spreads are narrow, it indicates that investors are not demanding much extra compensation for taking on this risk. However, if the credit risk of companies starts to increase, it would be expected that credit spreads would widen, as investors would require more compensation to hold these bonds.

Thus, the data suggest that the recent rise in bond volatility is a signal that corporate credit spreads are too narrow and may increase significantly in the near future, as investors reassess the credit risk of companies.