Treasury volatility is set for its biggest jump in more than a year after bond yields rose to multi-decade highs, jolting the market from its recent slumber. ICE Bof A’s MOVE Index, a gauge of bond-market volatility, has surged about 29.69% this week, the biggest increase since the so-called Liberation Day last April, when President Donald Trump’s sweeping import tariffs roiled global markets. It’s now at levels last reached in March, soon after the Iran war kicked off.

The swings are so severe that many traders have retreated to the sidelines. Adam Kurpiel, head of rates strategy at Societe Generale SA, says his team is neutral on US rates and is waiting “for volatility to subside before initiating trades.” The turbulence in Treasuries contrasts with calmer volatility in stocks, currencies, and oil, even as Brent crude rose nearly $15 a barrel this month amid renewed US-Iran hostilities. The disparity reflects repricing of the Federal Reserve’s policy tightening path, as oil prices rebounded and US business activity accelerated to its fastest pace in over five years, pushing traders to bet on Fed rate hikes.

This lifted US five- and 10-year government borrowing costs to the highest since 2007, while the 30-year yield climbed to a more than two-decade peak. For the MOVE index, even a slight increase Friday would make the weekly jump the biggest since 2022. However, bonds steadied after the prior day’s surge as oil prices eased.

Swaps still imply about a 70% chance of a quarter-point rate increase in October, up from near zero at the start of the month, with four hikes nearly fully priced by the end of next year. Benoit Gerard, rates strategist at Natixis SA, called yesterday “capitulation day,” noting a likely change in mindset since this month’s rate hike and the end of denial around further hikes.