The MOVE Index has jumped to the fore as the best measure of financial market volatility. While the VIX measures volatility in equity markets, the equivalent MOVE Index measures volatility in the far larger bond market which as a better track record as a leading indicator of the economy. Here are some quotes from MOVE creator Harley Bassman that explain how the MOVE works:
The MOVE and the VIX are very similar in that they basically measure short dated one month volatility. The key thing is that these indices are mostly coincident indicators as opposed to forward looking, because they tend to track realized volatility……
When you have a very steep [yield] curve, so a two year of, call it two, and a 10 year of four, that creates a forward rate that’s much higher than today.
When we get that, the steeper the curve or the more inverted, the bigger the distance between today’s interest rates and tomorrow’s interest rate. Time only goes one way. So the future becomes the present, which means that forward rate got to come to the spot, today’s price, or today’s spot price has to go up to the future price. The bigger the distance, the bigger the spread, the more movement there has to be, and therefore the more uncertainty you have; and the price of uncertainty is implied volatility. (ICE.com)
As the creator of this Index, let me say that both 50 and 150 are the “wrong number”. A level near 50 can only occur when the FED actively constrains risk, while a level near 150 occurs when the FED has lost control. The MOVE at 150 infers interest rate changes of about 9.5bps per day, a volatility that is unsustainable if only because human beings cannot tolerate such stress for long periods of time. (ConvexityMavens.com)