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Citigroup warned that rising bond-market volatility could pose a greater risk to equities when the selloff is driven by longer-term yields rather than changing expectations for Federal Reserve policy.
Long-end pressure draws attention
In a report published Friday, October 2, Citi said the MOVE index, which tracks expected volatility in U.S. Treasury markets, had risen above two standard deviations relative to its one-year range the previous Thursday. Investing.com reported the move followed strong purchasing managers’ index data and a weak Treasury auction that pushed the 10-year yield above 5%.
Citi’s assessment, as reported by Investing.com, is that volatility in rates can matter more to risky assets than the absolute level of yields. The bank noted that elevated MOVE readings have historically coincided with weakness in the S&P 500. It also said the index has often retreated below the threshold within days, and that volatility typically eases once investors establish a clearer view of the Fed’s rate path.
A different driver for the selloff
That historical pattern may offer less reassurance in this case, Citi said, because the latest bond-market move was led by the back end of the yield curve rather than Fed expectations. The bank’s rates strategists pointed to weak demand at auctions, describing a buyer’s strike that has made auction weeks worse than usual.
Citi said a higher neutral-rate outlook alongside strong growth may be contributing to the pressure, while identifying no clear near-term catalyst to end the buyer’s strike. The bank also observed that small-cap stocks had fallen more sharply than the broader market, despite a steadier S&P 500.
