Board of Governors of the Federal Reserve System

1-1. Yields on Nominal Treasury Securities

1-2. Term Premium on 10-Year Nominal Treasury Securities

1-3. Option-Implied Volatility on the 10-Year Swap Rate

This is a line chart titled "Option-Implied Volatility on the 10-Year Swap Rate." The x-axis measures time and ranges from years 1997 to 2020. The y-axis ranges from 0 to 200 basis points. The data are monthly. The variable plotted, the option-implied volatility on the 10-year swap rate, is designated by a black line. It begins in 1997 at around 100 basis points. It rises to around 150 basis points in 2001, then steadily declines from 2003 to 2007 where it reaches around 50 basis points. It gradually rises from 2007 to 2009 peak of around 175 basis points in 2009. It then drops steeply to around 100 basis points in 2010, and then gradually declines to around 75 basis points in November 2019, with a brief rise to around 100 basis points in 2013.

Note: Implied volatility on the 10-year swap rate 1 year ahead, derived from swaptions.

Source: Barclays PLC, Barclays Live.

1-4. Corporate Bond Yields

This is a line chart titled "Corporate Bond Yields." The x-axis measures time and ranges from years 1997 to 2020. The y-axis ranges from 0 to 18 percent. The data are monthly and there are two variables plotted on the chart. The first line is labeled "10-year high-yield" and is designated by a black line. It begins at around 9 percent in 1997 and rises gradually to around 13 percent in 1999 and 2000. It falls to around 7 percent in 2003, and then peaks sharply in 2008 and 2009 at around 17 percent before falling sharply to around 8 percent in late 2009. It remains between 6 and 8 percent from 2010 to April 2019, with a recent increase to 7.39 in December 2018 followed by a decline to about 6 in April. The second line is labeled "10-year triple-B" and is designated by a blue line. It begins at around 8 percent in 1997, and fluctuates between 7 and 9 percent until it drops to around 5 percent in 2002 and 2003. It gradually rises until it sharply increases to around 10 percent in 2008 and 2009, and then sharply declines to around 5 percent in late 2009. It remains between 3 and 5 percent from 2010 to October 2019. It also had an uptick in late 2018 but has since declined to about 4 percent.

Note: The 10-year triple-B reflects the effective yield of the ICE BofAML 7-to-10-year triple-B U.S. Corporate Index (C4A4), and the 10-year high-yield reflects the effective yield of the ICE BofAML 7-to-10-year U.S. Cash Pay High Yield Index (J4A0).

Source: ICE Data Indices, LLC, used with permission.

1-5. Corporate Bond Spreads to Similar-Maturity Treasury Securities

This is a line chart titled "Corporate Bond Spreads to Similar Maturity Treasury Securities." The x-axis measures time and ranges from 1997 to 2020. The data are monthly, and there are two variables plotted on the chart. The first line is labeled "10-year high-yield" and is designated by a black line. This line corresponds to the values on the right y-axis, which ranges from 0 to 16 percentage points. It begins at around 3 percentage points in 1997, rises to around 8 percentage points from 2000 to 2002, then drops sharply to around 3 percentage points in 2003. It remains around 3 percentage points until 2008 when it rapidly rises to its peak in late 2008 of around 15 percentage points. It then falls steeply in 2009 to around 4 percentage points, goes briefly up to around 6 percentage points in 2011 and 2012, falls gradually to around 3 percentage points from 2012 to 2014, rises gradually from 2014 to 2016 to 6 percentage points, then falls to around 4 percentage points again from 2016 to October 2018. It then increases in November and December 2018 but decreases to around 3.5 percentage points in November 2019. The second line is labeled "10-year triple B" and is designated by a blue line. This line corresponds to the values on the left y-axis, which ranges from 0 to 8 percentage points. It begins at just under 1 percentage point in 1997, rises to around 3 percentage points from 2000 to 2002, then drops sharply to around 1 percentage point in 2003. It remains around 1 percentage point until 2008 when it rapidly rises to its peak in late 2008 of around 7.5 percentage points. It then falls steeply in 2009 to around 1.5 percentage points and goes briefly up to around 2.5 percentage points in 2011 and 2012. It then falls gradually to around 1.5 percentage points from 2012 to 2014, rises gradually to around 2 percentage points in 2016, then declines to around 1.5 percentage points again from 2016 to October 2018. It then increases in November and December 2018 but decreases to around 1.5 percentage points in November 2019.

Note: The 10-year triple-B reflects the effective yield of the ICE BofAML 7-to-10-year triple-B U.S. Corporate Index (C4A4), and the 10-year high-yield reflects the effective yield of the ICE BofAML 7-to-10-year U.S. Cash Pay High Yield Index (J4A0). Treasury yields from smoothed yield curve estimated from off-the-run securities.

Source: ICE Data Indices, LLC, used with permission; Department of the Treasury.

1-6. Corporate Bond Premium over Expected Losses

1-7. Spreads on Newly Issued Institutional Leveraged Loans

1-8. Forward Price-to-Earnings Ratio of S&P 500 Firms

1-9. Spread of Forward Earnings-to-Price Ratio of S&P; 500 Firms to 10-Year Real Treasury Yield

1-10. S&P 500 Return Volatility

This is a line chart titled "S&P 500 Return Volatility." The x-axis measures time and ranges from 1997 to 2020. The y-axis ranges from 0 to 70 percent. The data are monthly. The first line is labeled "Option-implied volatility index (VIX)" and is designated by a black line. The line is jagged throughout the plot. It starts around 20 percent in 1997, rises to and falls from around 30 percent at the end of 1997, and rises up from around 20 percent to around 40 percent in both 2001 and 2002. It gradually falls from 2002 through 2006 to around 10 percent, before it rapidly increases to its peak of around 60 percent in late 2008. It quickly declines to around 15 percent in 2010, and rises to 30 percent in late 2010 before falling again to around 15 percent. It rises from 15 percent to around 35 percent and falls back down to around 15 percent in late 2011, and remains steady around 15 percent until 2016, when it rises to almost 25 percent. It falls again from 2016 to the beginning of 2018, when it rises from around 10 percent to around 20 percent. It spikes again beginning October 2018 and ending in December around 25 percent. It then declines throughout 2019, ending around 15 percent in November. The second line is labeled "Realized volatility," and is designated by a blue line. It follows mainly the same trends as the black line, but at a slightly lower percent. It begins at just above 10 percent in 1997, rises to just below 20 percent and falls back to around 10 during 1997, and rises in 1998 to around 25 percent before falling to around 15 percent in 1999. It remains between 15 and just above 20 percent until 2002, when it spikes from around 15 percent to almost 30 percent. It then falls gradually from 2002 to 2004, reaching just under 10 percent and staying steadily around 10 percent through the end of 2006. It then quickly increases through 2007 and 2008, reaching its peak of around 60 percent in late 2008. It quickly declines to around 10 percent in 2010, and rises to around 20 percent in late 2010 before falling again to around 10 percent. It rises from 10 to around 25 percent in late 2011, and falls again to below 10 percent, where it gradually declines until late 2015, when it increases from below 10 percent to just above 20 percent. It falls again from around 20 percent to just under 10 percent in 2015, and continues to decline until early 2018. It then spikes up in October 2018 and continues to rise until January 2019, where it peaks around 20 percent and then declines to about 10 percent in November 2019.

Note: Realized volatility estimated from five-minute returns using an exponentially weighted moving average with 75 percent of the weight distributed over the past 20 days.

Source: Bloomberg Finance LP.

A. U.S. Treasury Securities Market Illiquidity Index

This is a line chart titled “U.S. Treasury Securities Market Illiquidity Index”. The x-axis measures time and ranges from 2005 to 2020. The y-axis represents index points and ranges from -3 to 12 on the left and 0 to 240 on the right. The data are 21-day moving averages. There are two variables charted on the plot. The first line is dashed and the color red. It represents the Merrill Lynch Option Volatility Estimate (MOVE) index. It is measured using the right side y-axis. It begins right above 60 index points beginning in 2005 and stays around that level until 2007. It steadily increases after that to around 220 in 2009 with on small decline seen in 2008. It then decreases over time, besides small upticks at the Taper Tantrum and Flash Rally lines, to end around 75 for September of 2019. The second line, labeled “Illiquidity Index”, is a black solid line and measured on the left side y-axis. It follows a similar trend to the “MOVE Index” line just at a lower level. It starts at zero index points in 2005. It increases to its highest peak on the plot of 9 index points in 2009. It then decreases over time, besides small upticks at the Taper Tantrum and Flash Rally lines. There is then an increase beginning in 2019. It ends around 1 in September 2019.

Note: 21−day moving averages of an illiquidity index for 2−, 5−, and 10−year on−the−run U.S. Treasury notes in the interdealer market and the Merrill Lynch Option Volatility Estimate (MOVE) index.

Source: Staff calculations based on data from the interdealer broker community; Bloomberg Finance LP.

Figure B. Equity Futures Market Illiquidity Index