CVOL is a suite of implied volatility indices measuring 30-day forward volatility across all option strike prices of key futures markets. It’s based on a simple variance methodology to measure the volatility across all strikes for a given futures market.1
Volatility indices may be considered a sentiment indicator as they attempt to capture the view of a wide range of options-market participants. A recent shift in trade policy has focused discussion on volatility in various market and economic sentiment indicators. In this article, we discuss convexity, one of CVOL’s five derivative metrics, and what it suggests about a market’s sentiment.
CVOL Convexity
Convexity is defined as the ratio of CVOL divided by the market’s at-the-money (ATM) implied volatility metric, which is included in the CVOL suite. In essence, it measures if there is excess variance in the wings of the options strike prices versus ATM. A higher convexity suggests greater acceleration of market volatility, regardless of the underlying market’s rally or decline. Higher convexity translates to greater price volatility for options from the current market price (out-of-the-money options). This suggests increased market uncertainty about the future direction of prices, coupled with an expectation that the underlying futures price will move away from its current level. This suggests the options market sentiment for a growing uncertainty beyond what is indicated by the volatility curve itself. As a ratio, it can be easier to compare across asset classes.
Convexity Examples
Below are examples of elevated and relatively low convexity across several asset classes.
1. Convexity of the U.S. Treasury Yield Curve Futures
Figure 1 displays daily convexity across the yield curve from 2013 to 2022. Two points to note:
Convexity tends to be more sensitive in the shorter end of the yield curve, thus greater variance as yields may be moving higher or lower.
In 2013, it was the “taper tantrum” when the Fed was reducing their quantitative easing, causing Treasury markets to move. In 2020 and 2021 due to COVID-19, supply chain shocks and higher inflation saw increased convexity.
Figure 1: Comparing convexity of Treasury yield curve
The Box and Whisker plots in Figure 2 demonstrate greater variance of convexity at the shorter end (two year) of the U.S. Treasury yield curve, vs the 30-year. While average convexity hovers around 1.06, a significant portion of the two-year convexity distribution consists of outliers. This points towards increased potential for price swings or volatility in options tied to the short-term segment of the yield curve.
Figure 2: Variance of CVOL’s Convexity at Different tenors of the Yield Curve
2. Convexity of British Pound Futures
On June 23, 2016, the UK voted to leave the European Union.2 As noted in Figure 3, leading up to the referendum vote, the British pound futures contract was relatively steady around the 1.43 range. At the beginning of June 2016, convexity declined to new lows of 0.96, implying the market focused on the ATM strike prices, with most of the market’s risk premium focused in a narrow range. On the day of the vote, convexity spiked as the referendum resulted in the UK leaving the EU, demonstrating increased uncertainty for the direction of the currency, as this would suggest more activity in the out-of-the-money options.
Figure 3: British Pound convexity spiked due to the Brexit vote
3. Convexity of Wheat Futures
Figure 4 shows convexity dropping rapidly at the end of February 2022 when the conflict started in Ukraine. This is akin to Brexit as the impact of this event had a clear effect on the wheat market, with prices rising rapidly and volatility focused on ATM, with convexity dropping to 0.99, which is historically low for wheat.
Figure 4: Front Month Wheat Futures and CVOL’s Convexity
In October 2022, the wheat market was focused on whether Russia would continue its participation in the Black Sea Grain Initiative, an agreement brokered by the United Nations and Turkey with Ukraine and Russia as the signatories to continue exporting Ukraine food products and fertilizer via three Black Sea shipping ports.3 This build up in convexity driven by a future binary outcome was focused around the November 19 deadline. However, Russia’s temporary withdrawal from the agreement on October 29 caused the reduction in convexity observed in late October.
Current examples of convexity
1. Convexity of Treasury Futures
The recent market movements in 2025 show the Treasury yield curve convexity increasing due to more activity with OTM strikes. Yields could be moving higher or lower but are perceived to move from the current level. This is another sign of uncertainty. As the markets entered 2025, convexity fluctuated around its historical average of 1.06 area as noted in the Figure 2 Box and Whisker plots.
However, in April as U.S. trade policies changed, convexity jumped higher, and Treasury yields increased in April with convexity also increasing. This indicates increased activity in the OTM Treasury options on futures thus implying the market is uncertain where it will be relative to ATM yields. Since early April, convexity has sustained a higher regime, implying the options market perceives greater uncertainty for future Treasury yields. While the 30-year convexity is stable, the two-year convexity is increasing as they tend to be more in line with its historical behavior.
Figure 5: Convexity of U.S. yield curve in 2025
2. Convexity of Euro Futures
The convexity of Euro futures shows the market cycling around 1.05, which is its long-term mean and median on daily data since October 2013. In August 2024, convexity kicked up as the market was uncertain of where it was going. As Euro futures bottomed in January 2025, there was an initial increase in convexity, but as the Euro moves higher, convexity is reverting to the mean, suggesting the market is perceiving less uncertainty in the foreseeable future.
Figure 6: Front Month Euro Futures and CVOL’s Convexity
Summary
Convexity is a ratio of volatility across the entire volatility curve versus ATM volatility. When it increases, there is more variance in the OTM option strikes, suggesting the option market’s sentiment has increased uncertainty of the front-month futures contract and its potential price direction. As noted earlier, the convexity of the front-end of the Treasury yield curve tends to contain more variance relative to the back end of the yield curve.
References
Trading volatility
CME Group Volatility Index (CVOL) delivers the first-ever, cross-asset suite of implied volatility indices.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
