Treasury yield implied volatility and real activity

Martijn Cremers, Matthias Fleckenstein and Priyank Gandhi

Journal of Financial Economics, 2021, vol. 140, issue 2, 412-435

Abstract: We show that at-the-money implied volatility of options on futures of five-year Treasury notes (Treasury “yield implied volatility”) predicts both the growth rate and volatility of gross domestic product, as well as of other macroeconomic variables, like industrial production, consumption, and employment. This predictability is robust to controlling for the term spread, credit spread, stock returns, stock market implied volatility, and several other variables that prior literature showed to predict macroeconomic activity. Our results indicate that Treasury yield implied volatility is a useful forward-looking state variable to characterize risks and opportunities in the macro economy.

Keywords: Treasury futures and options; Implied volatility; Macroeconomic activity; Macroeconomic uncertainty; Forecasting (search for similar items in EconPapers)
JEL-codes: E31 E37 F31 G12 G13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:140:y:2021:i:2:p:412-435

DOI: 10.1016/j.jfineco.2020.12.009

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