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2/6 MOVE (Merrill Option Volatility Estimate) is the "VIX of the bond market." It skyrocketed yesterday, rising almost 24 points (!) to the highest level since last April. https://t.co/rOkgurayam 3/6 The MOVE was up 28.23% yesterday. This is its largest daily rise since October 2020. Only four other instances since the end of the Great Recession in 2009 have seen the MOVE have a larger percentage rise than yesterday. https://t.co/MANJjhUqkK 4/6 The MOVE is the implied volatility of 30-day interest rate options. In other words, it is options traders' pricing in what they EXPECT upcoming volatility to be. A big up day like yesterday, coupled with a 13 bps rise in yield to an 8-month high, suggests the market changed its outlook and now expects a lot more volatility. Yesterday, the market gave up on a quick reopening of the Strait of Hormuz. It now expects/fears a big increase in crude oil (because supplies remain blocked) and a giant rise in inflation. 5/6 TIPS are Treasury Inflation Protected Securities. From them we can derive what the market expects for inflation. The market is now pricing 5+% inflation over the next year, and 3+% inflation average over the next two years. If this outlook is correct, the Fed not only cannot cut anymore, but might have to hike. If so, the bond market is correct to take 10-year yields straight up and totally reprice a higher level of volatility (MOVE). 6/6 Given all the above: It should be no surprise that the market is completely repricing Fed expectations, from two cuts (-2) just three weeks ago (day before the war) to now pricing in part of a hike (+0.37) by October. (Note, this hike is still less than +0.50 or 50%, but the way things are going, give it a few more days!)