Cboe Global Markets, Inc. which is an American stock exchange and market operator, recently laid out intentions to launch the Cboe 20+ Year Treasury Bond ETF Volatility Basis Point Index or the VIXTLT Index.
It has been developed from the measurement technique of Cboe’s VIX® Index and will measure the 30-day average expected volatility in the US Treasury market based on options on the iShares® 20+ Year Treasury Bond ETF (TLT). The VIXTLT Index will be launched in Q3 of 2024.
The VIXTLT Index, developed by Cboe Labs and administered by Cboe Global Indices, leverages Cboe’s expertise in derivatives and data. This new addition expands Cboe’s volatility index suite, which includes over 450 derivatives-based indices.
TLT, the underlying ETF, consists of U.S. Treasury bonds with maturities exceeding twenty years, offering a transparent and liquid option for market participants.
Tracking Treasury Market Volatility
A rise in the VIXTLT Index could signal rising uncertainty in traditional finance, potentially leading investors to explore tools like the volatility index, a key measure of broader market volatility, for insights into market sentiment. It will provide the market participants with an understanding of how the market expects the changes in U. S. interest rates to occur in the near future in terms of the single index.
Rob Hocking, Senior Vice President and Head of Product Innovation at Cboe, emphasized the significance of this new index, stating, “For more than 30 years investors across the globe have used the VIX Index as a benchmark to help gauge U.S. equity market volatility, and today Cboe is proud to further expand its volatility suite to include a U.S. Treasury market measure.”
The series of the VIXTLT Index will be stated in the basis point volatility to follow the fixed income pricing conventions. The drivers can be factors such as changing monetary policy regimes, macroeconomic variables and other factors that affect supply and demand and behavioral aspects.
While the cryptocurrency market and the U.S. Treasury market typically operate as independent entities, they can influence each other. With the current downtrend in Bitcoin dropping it towards $65k might start enough FUD for some traders to look elsewhere.
A surge in the VIXTLT Index could signal rising uncertainty in traditional finance, potentially leading investors to flock to “safe haven” assets like Treasuries. This could trigger selloffs in cryptocurrencies as investors reshuffle their holdings.
Also Read: Cboe and FTSE Russell Partner for Digital Asset Derivatives
