U.S. Bond-Market Volatility Set for Significant Annual Decline

The U.S. bond market is experiencing a notable decline in volatility, with the ICE BofA MOVE Index, which measures expected bond-market fluctuations, projected to record its largest annual drop since 2009. As of late December 2025, the index has decreased to approximately 59, marking its lowest point since October 2021. This decline follows a significant drop from around 99 at the end of 2024, positioning it for one of the steepest annual declines since the index's inception in 1988.

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Several factors have contributed to the current state of low volatility in the bond market. The Federal Reserve's recent interest-rate cuts, aimed at mitigating risks associated with an economic downturn, have played a crucial role. The Fed has reduced interest rates for three consecutive meetings since September 2025, responding to a cooling labor market. Additionally, positive economic indicators, such as the strongest third-quarter gross domestic product growth figures in two years, have further alleviated uncertainties in financial markets.

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John Briggs, head of U.S. rates strategy at Natixis Corporate and Investment Banking, noted that the absence of problematic economic data has contributed to the current stability. He remarked, “We haven’t really had any problematic data” that could trigger significant market movements. This period of low volatility is typical for the end of the year, particularly during a week characterized by reduced trading activity due to the Christmas and New Year holidays.

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Bond traders are anticipating further interest rate cuts, with expectations for two additional quarter-point reductions in 2026, the first of which is projected for the June meeting. Despite the current calm in the markets, Briggs cautioned that January could bring unexpected developments or challenge prevailing consensus views.

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While the current low volatility is viewed positively by some market analysts, there are concerns regarding the potential risks associated with prolonged low interest rates and market stability. Critics argue that such conditions may lead to complacency among investors, potentially masking underlying economic vulnerabilities that could surface in the future.

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• “We haven’t really had any problematic data” — John Briggs, Head of U.S. Rates Strategy, Natixis Corporate and Investment Banking

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• “January can sometimes bring surprises, or challenge widely held consensus views,” — John Briggs, Head of U.S. Rates Strategy, Natixis Corporate and Investment Banking

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The bond market's current trajectory reflects a complex interplay of Federal Reserve policies, economic indicators, and seasonal trading patterns, setting the stage for potential shifts in early 2026.

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