Across 2024 there were significant shifts in the shape of the Treasury yield curve, particularly following the U.S. election. However, our Treasury Yield Volatility Index (TVL) showed, across the year, a marked decrease in implied volatility across Treasury markets. As can be seen in Figure 1 below, the average implied volatility across 2024 was approximately lower by 20% compared to 2022 or 2023. It is notable that 2024 saw a TVL high of 169.2, which was significantly below the TVL highs of 2022 (193.4) or 2023 (236.5). This level of implied volatility was mirrored in realized volatility in the Treasury complex as the 10-Yr Treasury price volatility fell from 2022 to 2024 as seen in Table 1, resulting in a 66% drop from 2022 to 2024 with similar volatility contractions occurring across the curve.

In the second half of 2024, the NY Federal Reserve cut interest rates three times by a total of 100 basis points bringing the target rate back to the levels seen at the start of 2023. Implied volatility in the short-term interest rate space was markedly lower across the SOFR complex, even taking into account the Fed rate changes and election in the second half of the year. The SOFR CVOL (SRVL), SOFR 1-year Mid-Curve CVOL (S1VL) and SOFR 2-year Mid-Curve CVOL (S2VL) were all lower in 2024 than 2023 or 2022. It is particularly notable that the maximum SRVL value in 2024 (139.1) is below the upper quartile of values for 2023, as shown in Figure 2.

Central Banks in the UK, Europe and the UK began decreasing interest rates in 2024, while Japan saw its first interest rate increase and change in almost a decade. In spite of the central bank activity, our G5 FX CVOL index (FXVL) level fell in 2024 compared to 2023 or 2022, with the average implied volatility in major currency pairs falling from 10.6 in 2022 to 7.3 in 2024 (Figure 3). The realized volatility figures, as shown in Table 2, demonstrate that in euro FX and British pound FX realized volatility was significantly lower in 2024 when compared to 2022. The Japanese yen and U.S. dollar was a currency pair of particular note, given it bucked the trend of lower volatility with the Bank of Japan’s first interest rate hike in many years and its impact on the carry trade resulting in a flurry of repositioning. The realized volatility for this pair increased in 2024, which given the central bank activity was not surprising.

The global energy market went through a number of cycles over the last three years as global supply of energy, as well as levels of demand, have fluctuated over the years. Conflict and rising tensions in both Eastern Europe and the Middle East resulted in increased volatility in the energy market. Over the course of 2023 and then 2024, the disruptions experienced in 2020-2022 decreased, with the energy CVOL (EVL) index falling nearly 29% from 2022 to 2024. In addition, the realized volatility of the Energy futures markets (Table 3) also normalized. In particular WTI crude oil fell from 48% in 2022 to 29% in 2024. Natural gas realized volatility slightly increased in 2024 to 77%. However, this is still below the 98.5% realized volatility from 2022.

Agricultural markets were no exception for the contraction in volatility since the recent peaks in 2022. Global disruptions to the food supply with natural disasters and epidemics, as well as conflict in key exporting countries, caused outsized volatility in 2022 that sent shocks that persisted in agricultural markets. This produced high levels of implied and realized volatility, with grain markets particularly affected. While global events continued to impact agricultural markets in 2023 and 2024, there was a significant drop in realized and implied volatility. Realized volatility in Chicago Wheat futures fell from 51% in 2022 to 27% in 2024 and corn realized volatility fell from 31% to 20% in the same time period (Table 4). AVL shows the implied volatility falling significantly in the Agricultural asset class, decreasing from an average of 29 in 2022 down to 20.3 in 2024, with a max AVL level of only 24.8 for the year (Figure 6).

One outlier from the lower volatility of 2024 markets can be observed in the metals sector. Gold, silver and copper saw large 2024 price movements. Gold and Silver futures prices have been on the rise since 2022, continuing to push record levels and leading to consistently high realized volatility. That paired with slowing demand for industrial metals in key manufacturing centers like China caused increased volatility throughout the metals complex leading out of the pandemic. The large 2024 price movements led to steady realized volatilities (Table 4). Additionally, the implied volatility measured via the metals Volatility Index (MVL) increased slightly from 15.5 in 2023 to 17.3 in 2024, mirroring the behavior of realized volatility.

2024 was a year of many geopolitical and global events that could have been major volatility events in the market. However, following the extreme turmoil of prior years, the market seems to have been managing risk positions despite market moving events. Both implied volatility as well as realized volatility fell in 2024 despite continual market events. Whether this trend persists is unclear, but 2024 appears to show that markets are becoming accustomed to pricing in the geopolitical risks and ongoing upheaval.