'Bond Fear' Hits Highest Since Pandemic... Increased Bankruptcy Risk for Low-Credit Companies

MOVE Index Nearly Doubles Since Early Year, Hits Highest Level Since March 2020
US Treasury Prices Face Increased Volatility Risk... Cosmetics Company 'Revlon' Files for Bankruptcy Protection

[Asia Economy Reporter Park Byung-hee] The MOVE index, known as the fear gauge of the U.S. Treasury market, recently surged to its highest level since March 2020, the early days of the COVID-19 pandemic. This indicates an increased risk of a sharp rise in U.S. Treasury yields (price declines), which could lead to broader cost pressures across financial markets.

According to Bloomberg News, the MOVE index recorded 144.09 on June 14, when the U.S. Federal Reserve (Fed) began its Federal Open Market Committee (FOMC) meeting. This was the highest level since March 12, 2020 (152.6). The MOVE index hovered around the 70 level earlier this year but has nearly doubled since then.

The MOVE index is calculated based on the volatility of U.S. Treasury options, with a higher index indicating greater volatility in U.S. Treasury prices. In other words, a higher index suggests an increased risk of sharp fluctuations in Treasury prices, making it a gauge of anxiety in the Treasury market.

The recent surge in the MOVE index reflects the Treasury market’s uneasy reaction to expectations that the Fed will raise its benchmark interest rate sharply to curb inflation. In fact, the U.S. consumer price index rose 8.6% in May, shattering expectations that the March peak of 8.5% would hold, which led to a sharp rise in U.S. Treasury yields. The Fed also took an aggressive stance on inflation by deciding on a giant step (a 0.75 percentage point increase in the benchmark rate) at the FOMC, the largest hike in 28 years.

As inflationary pressures persist, there are forecasts that bond yields will rise further. Jeffrey Gundlach, CEO of DoubleLine Capital and known as the "Bond King," said in an interview with CNBC that he expects U.S. inflation to remain in the 8% range for the next several months. This is a warning that U.S. Treasury yields could continue to rise.

The rise in U.S. Treasury yields means increased cost burdens for companies that have issued bonds and a higher risk of bankruptcy. The market is increasingly concerned that low-credit companies, which significantly increased their debt during the low-interest-rate period amid the COVID-19 pandemic, could face crises due to the surge in yields. Japan’s Nihon Keizai Shimbun analyzed, "As the U.S. Treasury fear index surpasses levels seen during the COVID-19 pandemic, the likelihood of bankruptcies among low-rated companies has increased," adding that "this could shock the global financial market."

In fact, major companies in the U.S. are filing for bankruptcy. On June 15, Revlon, a major U.S. cosmetics company with a 90-year history, filed for Chapter 11 bankruptcy protection in a New York court. Revlon significantly increased its debt during its acquisition of competitor Elizabeth Arden in 2016 and faced a liquidity crisis as sales plummeted during the COVID-19 pandemic.

This content was produced with the assistance of AI translation services.