New bond market ‘fear gauges’ will warn of trouble—but could be trouble themselves
Volatility indexes provide market insights that can benefit individual investors—as long as they don't invest in them directly
The 30-year-old CBOE Volatility Index, known by its ticker VIX, is well-known as a useful measure of the stock market’s riskiness. It falls when stocks rise, and vice versa.
Hence its nickname, the "fear gauge."
Now, its backers are rolling out similar tools for the bond markets. They, too, could be useful benchmarks—just think twice before investing in them directly.
Investors lost untold millions investing in an exchange-traded fund (ETF) based on the VIX during the Great Recession. Same for the meme-stock Robinhood generation that lost its shirt on the index during Covid.
Both groups had, sensibly, thought that buying an investment that went up when the markets went haywire sounded smart in turbulent times. But the structure of volatility indexes meant these ETFs almost always tanked.
The new bond "fear gauges" aren't any different.