Suppressed Bond Volatility May Begin To Matter As Yields Move Higher

By Michael J. Kramer of Mott Capital Management

Founder/CEO at Mott Capital Management, LLC • Jan 17, 2026 at 2:20 PM EST

If yields continue to move higher and volatility begins to expand, implied volatility across bonds—and equities and credit—could likely rise as well.

Historical Stock, Securities, Certificates, Fund, Bonds

Image Source: Pixabay

Treasury rates moved notably higher on Friday afternoon, with the most pronounced pressure concentrated in the 5-, 7-, and 10-year sectors, as the 10-year yield broke out of the trading channel it had held since mid-December. The move appeared to coincide less with speculation around potential Federal Reserve leadership changes, and more with renewed attention on the U.S. Treasury’s quarterly refunding process, particularly the discussion around restructuring the 7-year note auction calendar.

7-year yields rose by more than 5 basis points, compared with a 3 basis point increase in the 2-year, suggesting the move was driven more by issuance considerations than front-end policy expectations. This rate breakout occurred against a backdrop of historically compressed bond and equity volatility, with realized volatility in long-duration Treasurys near levels last seen in 2019.

If yields continue to move higher and volatility begins to expand, implied volatility across bonds—and potentially equities and credit—would likely rise as well, increasing the risk that the current period of sideways consolidation in equities gives way to more persistent choppiness.

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