Shift In TYVIX Term Structure

CBOE began publishing the term structure of TYVIX on April 24, 2015, providing the market with estimates of expected Treasury volatility through the first three expirations of CME OZN options (options on 10-Year Treasury note futures).

The TYVIX term structure provides a unique view of the market’s expectations of future Treasury volatility.  CBOE ticker symbols for the three volatilities are TYVIX1, TYVIX2 and TYVIX3. The chart below shows expected volatilities to May 27, June 24, and July 24, respectively. The gray bars show the number of days remaining until the May expiration.

The term structure changed from upward to downward sloping around May 1, immediately following the FOMC’s April statement.   The market read the FOMC announcement as indicating there would be no change in the target federal fund rate until at least September 2015, and this dampened expectations of future volatility.   Note in the chart below that nearby May volatility took a plunge below June and July volatilities, only to rebound in the last few days before the expiration of May 2015 OZN options.

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Article written by Catherine Shalen