Perhaps it is of little coincidence that the MOVE Index, a measure of bond market volatility, has decided to select this specific time period as a breakout point following a near 18 month downtrend.
What this chart represents is essentially a magnifying glass placed by the market right on top of the Fed, investigating the intricate details of the recent policy error that was slashing rates by 50 basis points.
Equally significant, the 18-month breakout in bond market volatility signals a lack of confidence in the Fed's future monetary policy decisions, particularly regarding interest rates.
Lastly, and perhaps most importantly, what this range expansion to the upside in bond market volatility represents is a demand by the market for measures to insure that long term rates remain in line with the overall objective of the Fed for monetary policy to be less restrictive overall.
While the recent massive spike in rates is short-term restrictive, it also intermediate to long-term accommodative in that it will force the Fed to act in a more creative manner, so to speak, with respect to future monetary policy decisions.
Being long assets that will benefit from creative monetary policy efforts, both domestic and foreign, is likely a prudent investment.
At the same time, being short assets that will find a higher rate environment disturbing, in case of a bond market gone mad, is equally prudent.
Forest meet tree.
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