What do surging Treasury yields imply for stocks as VIX reaches its highest level in 5 months?

The VIX, also known as the fear gauge of the stock market, has recently experienced a significant increase, reaching levels not seen in over five months. This rise in the VIX, which has surpassed the psychologically important level of 20, is a strong indicator of growing concerns within financial markets. Provided by CBOE Global Markets Inc., the VIX, a crucial measure of expected volatility in the S&P 500, saw a surge of nearly 13% on Tuesday and is currently on track for its third consecutive weekly gain. This surge follows a month of substantial volatility, with September seeing a 30% increase in the VIX, its strongest performance since April 2022. Notably, this comes after the VIX reached its lowest point since January 2020. The fear index has now surpassed both its 50-day and 200-day moving averages, with the latter being a breach of a significant resistance level since March 2023. The recent rise in U.S. Treasury yields is a primary factor behind this surge in the VIX. The yield on the 10-year Treasury note has surpassed 4.75%, reaching levels not seen since August 2007. Additionally, the 30-year Treasury yields have soared to 4.90%-4.95%, their highest levels in 16 years. Factors contributing to this increase in yields include a rising government deficit, the Federal Reserve’s quantitative tightening program, and a hawkish stance on interest rates. As U.S. government bond yields rise, it indicates a decrease in the value of traditionally safe and highly liquid assets, causing repercussions throughout global asset classes. The stock market is also feeling the impact of rising yields, as many companies and sectors depend on low or stable interest rates for their operations and profitability. The shift from a period of low interest rates to one characterized by higher rates and inflation creates challenges for growth stocks. This adjustment to a new environment of elevated rates and sustained inflation is fueling volatility in the stock market. While the VIX itself is not tradable, there are several ETFs available that provide exposure to stock market volatility. These include the Proshares Trust VIX Short-Term Futures ETF, Proshares Trust VIX Mid-Term Futures ETF, and 2x Long VIX Futures ETF.