Treasury Yield Implied Volatility and Real Activity

54 Pages Posted: 26 Jul 2017 Last revised: 21 May 2020

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Matthias Fleckenstein

University of Delaware

Priyank Gandhi

Rutgers University, New Brunswick

Date Written: July 21, 2017


We show that at-the-money implied volatility of options on futures of 5-year Treasury notes (Treasury ‘yield implied volatility’) predicts both the growth rate and volatility of gross domestic product, as well as of other macroeconomic variables, like industrial production, consumption, and employment. This predictability is robust to controlling for the term spread, credit spread, stock returns, stock market implied volatility, and several other variables that prior literature showed to predict macroeconomic activity. Our results indicate that Treasury yield implied volatility is a useful forward-looking state variable to characterize risks and opportunities in the macro economy.

Keywords: Treasury Futures, Treasury Futures Options, Implied Volatility, Interest Rate, Business Cycles, Real Activity, Macroeconomic Activity, Macroeconomic Uncertainty, Forecasting, Libor-OIS Spread, Bank Credit

JEL Classification: E31, E37, F31, G12, G13

Suggested Citation

Cremers, K. J. Martijn and Fleckenstein, Matthias and Gandhi, Priyank, Treasury Yield Implied Volatility and Real Activity (July 21, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: or

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Matthias Fleckenstein

University of Delaware ( email )

419 Purnell Hall
Newark, DE 19716
United States
3028314936 (Phone)


Priyank Gandhi

Rutgers University, New Brunswick ( email )

New Brunswick, NJ
United States

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