Presentation on VXTYN Futures & Interest Rate Volatility Delivered by Yoshiki Obayashi

Earlier today in Dublin, Ireland. Yoshiki Obayashi, Founder and Managing Director, Applied Academics, delivered a presentation at the CBOE Risk Management Conference Europe in Ireland on the subject of the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) and interest rate volatility.

The VXTYN Index measures the expected volatility of the price of 10-year Treasury Note futures. Futures on 10-year Treasury Notes are the most actively traded of all U.S. futures on U.S. Treasuries.  VXTYN provides a measure of expected volatility specific to the fixed income market. This is important because the volatilities of equities and Treasuries have often followed distinct paths. The index is calculated from CBOT’s options on 10-year Treasury futures using the same methodology as VIX®. VXTYN represents the variability of percentage changes in the price, as opposed to the yield of 10-year Treasury notes. Price and yield volatility are related to each other through duration, and yield volatility is typically higher than bond price volatility. As noted in a recent CBOE Blog, the VXTYN Index rose by more than 55% in the months of Sept. 2008 and May 2013.

Futures trading on the VXTYN is scheduled to begin in November.

Here are some of the key points made by Yoshiki Obayashi in his presentation —

– The correlation between VXTYN and diversified bond portfolios kicks up when concerns about interest rate volatility become heightened.

– The correlation between VXTYN and diversified bond portfolios have been significantly elevated since April 2013, indicating persistent investor anxiety about the future interest rates movements.

– The dynamics between VXTYN and returns on portfolios of specific fixed income assets, such as mortgages, muni bonds, and TIPS all differ from one another.

– On sharp drawdowns in bond portfolios, VXTYN tends to experience outsized movements, thereby smoothing bond portfolio returns hedged by VXTYN.

– The volatility term structure of Treasury options differs from that of S&P options, and suggests that the roll-down of VXTYN futures may not be as severe as that of VIX futures.

-CBOE’s VXTYN and SRVX indexes are not ad hoc weighted averages of model-dependent ATM volatilities, but are grounded in a rigorous theory of fixed income variance pricing.

For more information, including charts, data, and new research papers, please visit the VXTYN webpage at