"The market has seen the life sucked out of implied volatility levels across the board, with at-the-money June straddles pricing options (that expire in 92 days, which is over 3-months...nothing can happen in 3-months) in 5-yr futures at 2.8%, 10-yrs at 4.1% & 30-yrs at 6.8% as of the open today. The 2-yrs? Too depressing to mention (ahem, sub 2%). Bloomberg, using a different measure, points out that there has been a 20% drop in the past 2-weeks in expected yield range on treasuries over the next 12 months. They go on to point out that that is the lowest level of expected volatility since 1998...just before Russia defaulted on $40B in bonds, Long Term Capital was twisted by $4B in losses on interest rate trades & 10-yrs screamed higher on safe-haven buying, knocking yields off 1.0%in under 2-months." (Feb 23, 2006)
IOW, traders are not pricing much of a risk premium into the bond markets. Bonds have been trading in a narrow range for so long that everyone yawns. The last time this happened to such an extent it preceded a huge movement in the price of bonds. Last time the move was up..., this time - maybe up, maybe down maybe nothing.
good information...thanks for that post...