19 JUNE 2025
How the bond market reacts to the Trump administration’s U-turn on fiscal discipline will be key.
Higher long-dated borrowing costs are now likely as the “vigilantes” price in a less creditworthy US government. In turn, that would create a headwind for economic growth and risk assets.
However, the pace of any change in bond yields is what really matters.
The MOVE index is a widely followed measure of implied volatility in the US Treasury market. Think of it as the equity VIX index, but for bonds.
When the MOVE index spikes, it suggests bond markets are moving in a disorderly way.
The chart below shows that threat currently appears limited; the MOVE reading has compressed despite the recent pick up in Treasury yields.
That may well change should bond yields rise more aggressively to price in higher budget deficits and even more government borrowing.
But we also know that policymakers have little tolerance for bond market unrest.
And that any sudden increase in the MOVE index to around the 140 level is typically met with bundles of Central Bank and/or Treasury liquidity support.
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