An Analysis of the VIX Volatility Index on the US Treasuries, Specifically During the Periods of Quantitative Easing

Volatility is a concern of many investors. In turbulent financial times there can be a flight from the equity market to treasury bonds in order to provide greater security, liquidity and guarantee of returns. Calculated as a weighted average of put and call options on the S&P 500 Index, the VIX is considered as a forecasting indicator of the S&P 500 Index's volatility over a one-month period. The dependent variable in this study is the 10-year Treasury note. The 10-year T-note is the most widely tracked government bond, and it is used as a benchmark for banks and the Treasury market in calculating mortgage rates. One conclusion of this analysis is that implied stock volatility may be a valuable variable for financial applications that need to interpret and predict stock and bond market co-movements. Based the empirical analysis conducted; across models the change in VIX was predictive of the change in treasury. The model examination determined that in the model that included the autoregressive and moving average provided the most accurate results