Accessible Version
Elevated Option-Implied Interest Rate Volatility and Downside Risks to Economic Activity, Accessible Data
Figure 1. Option-Implied Volatilities of the One-Year Swap Rate.
Line chart shows the time series of swaption-implied volatility of one-year swap rate at a horizon of one year ahead (black line) between January 1999 and August 2023. Line shows monthly averages of daily data. At a horizon of one year ahead, the option-implied volatility of a one-year interest rate rose sharply between late 2021 and late 2022 to the highest levels since the Global Financial Crisis. While it has fallen back modestly in recent months, this measure remains around its highest level in more than a decade.
Note: Line shows monthly averages of daily data. Source: Barclays; ICAP.
Figure 2. Interest Rate Volatility and Survey-Based Measures of Risks to GDP Growth and Inflation.
The solid black lines in both the right and left figures of figure 2 show the one-year-ahead implied volatility measure from figure 1 alongside measures of probabilities of negative real GDP growth over the next four quarters (dashed blue lines), inflation (based on the GDP deflator) being lower than 1 percent (dash-dotted purple line on the left), and inflation (based on the GDP deflator) being higher than 4 percent (dash-dotted red line on the right) over the next year from the quarterly Survey of Professional Forecasters.
Note: Implied volatilities are the average of the sixth week of each quarter. Data extend through Q3:2023. Source: Barclays; ICAP; Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters.