Cboe Global Markets, Inc., a derivatives and securities exchange network, today announced plans to launch the Cboe 20+ Year Treasury Bond Underlying Volatility Index ETF (VIXTLT Index).
Using an adaptation of Cboe’s proprietary VIX® Index methodology, the VIXTLT Index will be calculated using options on the iShares® 20+ Year Treasury Bond ETF (TLT) and will provide market participants with the ability to track expected volatility going forward (30-day ). in the US bond 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 managed 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 suite of volatility indices and adds to Cboe’s current offering of more than 450 derivative-based indices covering a range of strategy benchmarks and asset classes.
TLT is a transparent and highly liquid exchange-traded fund (ETF) consisting of US Treasury bonds with remaining maturities of over twenty years and relatively high duration. Highly liquid options on TLT with a wide range of warnings help convey information about how investors potentially view the future of US interest rates, which in turn is distilled from the VIXTLT index methodology into a number designed to represent a consensus view of expected US Treasury volatility.
Similar to how the Cboe® Volatility Index (VIX®) measures the 30-day expected volatility of the US equity market, the VIXTLT Index is designed to provide a comparable range for the US Treasury market. Tracking the VIXTLT and VIX together can give investors a broad picture of perceived uncertainty in two major asset classes that have historically experienced periods of co-movement as well as significant divergence.
“For more than 30 years investors around the world have used the VIX index as a benchmark to help measure U.S. equity market volatility, and today Cboe is proud to further expand its volatility suite to include a measure of market of the US Treasury,” 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 use our powerful technology, data and customer feedback to continuously drive product development that meets customer needs.” .
To reflect the prevailing pricing convention in the bond market, VIXTLT will be available in basis unit volatility terms. Basis point volatility is a key concept in fixed income markets where risk is most commonly understood as the absolute—not percentage—change in return or spread multiplied by the price value of a basis unit. Potential drivers of the VIXTLT index may include unexpected changes in monetary policy by the Federal Reserve, surprises in macroeconomic indicators, technical supply and demand shocks, adverse risk events, or behavioral factors that cause sudden changes in investor risk aversion.