THE WEEK AHEAD ECONOMIC DATA RELEASE 18TH JAN 2026 US FIXED INCOME LANDSCAPE CY 2026 Greenland: Trump Vs EU BOJ JAN’26 MEETING PREVIEW THE WEEK AHEAD ECONOMIC DATA RELEASE 11TH JAN 2026 US CPI DEC’25 PREVIEW Earnings Preview S&P 500 4Q 2025 IRAN’S CURRENT REGIME FALL IS IMMINENT
Macrospectrum
Subscribe icon
Market Outlook

BONDS ARE SUDDENLY LOOKING CALMER THAN STOCKS

ADMIN || 18th December 2025

Stock investors are getting more and more nervous just as bond peers become calmer. That signals any fresh climb for equities volatility has the potential to send Treasury yields lower.

Increasing stock volatility this week indicated discomfort among risk parity accounts, prompting a rebalancing away from stocks and towards bonds to maintain desired risk profiles. The VIX Index gained more than 10% this week, touching a December high of 18 on Wednesday. At the same time, the MOVE Index of bond vol declined to be a stone’s throw from the lowest since 2021.

Risk parity funds employ quantitative strategies that target a specific level of overall portfolio volatility. When equity volatility gains, as measured by indexes such as the VIX Index, the risk contribution of the equity portion increases relative to the bonds. To square that, the funds reduce exposure to the riskier asset, in this case stocks, and increase the less volatile portion, or bonds.

Divergence in stock and bond volatility has caused these risk-weighed allocators to dynamically rebalancing for a second day, according to dealers that saw the flows. This adjustment can continue with volatility lashing Wall Street by pushing high-valuation technology shares and crypto lower while bond traders are content to wait out questions around the state of the economy, the fate of tariffs and who will be the next chair of the Federal Reserve are looking like 2026 propositions.

There is no VIX level that triggers risk parity accounts to buy bonds and shed stock. Rather it’s based on each portfolio’s proprietary model, volatility targets and rebalancing methods.

Even though the VIX remains contained below 20, derivatives investors have added to wagers that protect against stock volatility signalling fears of a continued rise in the index. If stocks continue on their downtrend and the VIX advances more, this could elevate bond inflows.

Legal Disclaimer:

Trading foreign exchange/commodities/equities/bonds on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange/commodities/equities you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange/commodities/equities trading and seek advice from an independent financial advisor if you have any doubts.

Read More