Cboe Global Markets, Inc. , a derivatives and securities exchange network, today announced plans to launch the Cboe 20+ Year Treasury Bond ETF Volatility Basis Point Index (VIXTLT Index).
Using an adaptation of Cboe’s proprietary VIX® Index methodology, the VIXTLT Index will be calculated using listed options on the iShares® 20+ Year Treasury Bond ETF (TLT) and provide market participants with the ability to track future (30-day) expected volatility in the U.S. Treasury market, the deepest and most liquid government securities market in the world. The VIXTLT Index is expected to launch in the third quarter of 2024.
Developed by Cboe Labs, the company’s product innovation hub, and benchmark administered by Cboe Global Indices, the VIXTLT Index leverages the combined strengths of Cboe’s derivatives and data businesses. The new index expands Cboe’s growing volatility index suite and adds to Cboe’s current offering of more than 450 derivatives-based indices, covering a range of strategy benchmarks and asset classes.
TLT is a transparent and highly liquid exchange-traded fund (ETF) composed of U.S. Treasury bonds with remaining maturities exceeding twenty years that have a relatively high duration. Highly liquid options on TLT with a wide range of strikes help convey information about how investors potentially view the future of U.S. interest rates, which is in turn distilled by the VIXTLT Index methodology down to one number designed to represent a consensus view on expected U.S. Treasury volatility.
Similar to how the Cboe Volatility Index® (VIX®) measures 30-day expected volatility of the U.S. equity market, the VIXTLT Index is designed to offer a comparable gauge for the U.S. Treasury market. Monitoring the VIXTLT and VIX indices together may afford investors a broad view of perceived uncertainty in two important asset classes that have historically experienced periods of co-movement as well as significant divergence.
“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,” said Rob Hocking, Senior Vice President and Head of Product Innovation at Cboe.
“Cboe offers a comprehensive ecosystem of services, touching every aspect of the customer experience – from market access and data, to tradable products and beyond. By combining our derivatives expertise with leading indexing capabilities, we are able to identify gaps in our product offering and utilize our robust technology, data and customer feedback to continuously drive product development that meet customers’ needs.”
To reflect prevailing bond market pricing convention, VIXTLT will be available in basis point volatility terms. Basis point volatility is a key concept in fixed income markets where risk is more commonly perceived as the absolute—not percentage—change in yield or spread, multiplied by the price value of a basis point. Potential drivers of the VIXTLT Index may include unexpected shifts in monetary policy by the Federal Reserve, surprises in macroeconomic indicators, technical supply and demand shocks, adverse risk events or behavioral factors triggering sudden shifts in investor risk aversion.
