Please summarize following in financial term
Buttonwood Move over VIX Why the move is now the true fear index W the Bank of America's long-run- fiscal stimulus. In the face of this more or one standard deviation of a normal insistent spending, businesses' rules of distribution) of the time interest rates ning survey of fund managers, the tail thumb about which kind of workers to are expected to lie between 4% and 6%. risk that has mostly preoccupied them hire, how much to pay and how quickly to At present the index is in the fifties, until recently has been the pandemic. In add capacity may prove faulty. Inflation which is low relative to its history and this month's survey, though, inflation might upset the form book. much lower than at times of extreme rose to the top of the list of worries. It is If inflation is uncertain, so is the path market stress (see chart). This is partly not hard to see why. High inflation, if for interest rates. Forecasts of monetary technical, says Mr Bassman. With in- sustained, would require central banks policy are reflected in the slope of the terest rates not far from zero and the Fed to act decisively to contain it. That would bond-yield curve and in interest-rate seemingly disinclined to ever take them mean the end of the low interest rates futures. The range of uncertainty around negative, the scope for volatility in Trea- that have underpinned the prices of an these expectations is embedded in options suries is somewhat curtailed. Another array of expensive-looking assets, from prices. A financial option is the right to explanation is that people believe the Fed stocks and bonds to property. buy or sell an asset at a specified price on when it says it will not change its mone- Surveys are one thing. The bets in- or before a specified maturity date. Op- tary-policy settings for a while. That vestors make are another. The vix, or tions are particularly valuable-and ex- expectation lowers the implied volatility volatility index, is the best-known mar- pensive-when investors are more un- on two-year Treasuries, which drags on ket gauge of fear. It tracks the cost of certain or more fearful about the future. the overall move index. insuring against extreme moves in The level of market anxiety or uncertainty Even so, the MOVE seems very likely to American share prices and is widely used can thus be extracted from their prices. rise again-and perhaps sharply. The Fed by banks and asset managers as a guide These are the raw material for the MOVE will get beyond the sitting-on-hands to managing risk in general. Yet the vix index, which is derived from options on phase. The market is betting that interest does not get directly to what presently two-, five-, ten-and thirty-year Treasuries. rates will rise in early 2023, after the Fed worries investors. For that, you need to The Move is expressed in basis points, has first announced and then completed consult a less-celebrated oracle-the explains Harley Bassman, who invented a tapering of its bond purchases. How far MOVE, or Merrill Lynch Options Volatility the index. If, say, interest rates are 5% and the MOVE will eventually move will de- Estimate, a market-based measure of the MOVE is 100, it means that most (68%, pend on how transitory inflation looks to uncertainty about interest rates. It has the bond markets and how in control of the stronger claim to being the true fear the situation the Fed seems. Many al- index. If it spikes it means bond in- Scary movies ready swear by the index. A sharp rise in vestors have been gripped by raw terror. MOVE interest-rate volatility index* it is often a cue for panicky sales of the The outlook for inflation is unclear. riskier sort of assets and a general repric- On the one hand, the form book says Lehman ing of individual securities, says Kevin there is no reason to worry. For much of collapse collapse Taper Russell of UBS O'Connor, the hedge-fund the past decade and more, the Federal unit of the Swiss asset manager. That is Reserve and other central banks have because if investors grow less certain consistently over-forecast inflation and about interest rates, they also lose confi- under-shot their inflation targets. Jumps dence about where value is in the credit in inflation, such as the one recorded last or equity markets. month as America's economy reopened For the rest of us, the MOVE is the best in earnest, have usually proved transito- proxy for something that matters a lot ry. On the other hand, present conditions given the growing fears of inflation. The seem fertile for inflation. The pressure advantage of a single-number gauge is on aggregate demand is fuelled not only "Yield-curve-weighted index of the normalised implied simplicity. And the MOVE is now the one by loose monetary policy but by hefty Bloomberg volatility on one-month US Treasury options to watch. 300 Enron LTCM bail-out Covid-19 250 tantrum 200 150 100 50 0 2000 05 10 15 21 1994 Source
