Rates Vol Monitor Dispersion of Risks

Economics Research 15 September 2026 | 3:11PM EDT

Rates Vol Monitor: Dispersion of Risks

n Rates volatility has been generally subdued through much of the rise in yields, Friedrich Schaper | though last week’s selloff was accompanied by higher vol. While increased policy Goldman Sachs & Co. LLC uncertainty has been a focal point in the US, and realized volatility at the very William Marshall front-end of the US curve has risen, forecast dispersion for front-end rates has | been fairly stable. Controlling for a broader set of macro drivers, the recent move Goldman Sachs & Co. LLC

up has taken US rates implied vol from the lower end of our fair value range to Loic Mathys | around the midpoint, suggesting vulnerability to an outcome that more clearly Goldman Sachs International widens the distribution of policy outcomes. n We find evidence that mildly hawkish Fed surprises relative to market pricing tend to deliver better vol-selling returns following the meetings than holds when the market put some risk on a hike. Assuming the Fed delivers the more or less fully priced 25bp hike on Wednesday, we think the broader implications for vol will likely hinge on the forward-looking indications from the SEP and/or press conference. A one-to-two hike median in the dot plot paired with emphasis on assessing incoming data would not resolve forward-looking uncertainty, but it should allow for some moderation in vol by removing the tail of a policy-driven widening of the rate distribution. n While our economists’ baseline is consistent with a more measured, data-dependent signal on the path ahead, last week’s ECB decision illustrated the potential impact of a strongly hawkish message as a source of sharp, front-end led vol upside. Conversely, a surprise hold at the September FOMC would likely support higher volatility further out the curve. n Further out the curve, Treasury’s increase in long-end buybacks has not had an observable impact on long-end swaption vol relative to shorter tenors. There has been a decline in the correlation between the 2-to-5y part of the curve and longer-tenors since mid-August, however, supporting curve volatility. We find that periods where growth and policy impulses go hand in hand (weak growth/dovish policy, strong growth/hawkish policy) on average correspond to lower correlation between points along the curve, and thus higher curve vol (all else equal). Given starting levels of curve vol and our macroeconomic and policy baseline, we think curve options are best used as hedges against the more extreme tails.

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Goldman Sachs Rates Vol Monitor

Energy volatility has been the predominant focus for global rates markets for much of the year, but a shift in Fed communication and to an extent Treasury’s approach to its supply decisions were sources of policy uncertainty this summer. We have shown previously that greater policy uncertainty can contribute to higher long-end yields and a steeper curve via increased term premium, and realized vol has risen at the very front-end of the US curve versus other markets (Exhibit 1). But that increase in very front-end vol has not translated to a consistent increase in broader rate volatility even as yields have moved higher. Instead, implied vol has adhered more closely to the relatively stable dispersion in forecasts of 1y ahead policy rate outcomes, which suggest that, despite the near-term reaction function uncertainty, policy rate expectations have moved higher in relative unison rather than via widening the distribution (Exhibit 2). Even after the uptick in US rates vol that accompanied last week’s selloff, once we control for a broader set of macro fundamentals, we find that implied vols are near the midpoint of our estimated fair value range. In some sense, the under-explored risk to the recent rates regime remains a more pronounced widening of the distribution around medium-term rate outcomes.

Exhibit 1: Higher…