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Bond market volatility: There's a VIX for that

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As the Federal Reserve gets set to chart a future course off zero interest rates, investors now have a chance to play along with how the moves will affect the government bond market.

The Chicago Board Options Exchange has added another wrinkle to its package of "VIX"—or Volatility Index—products, with futures that trace market sentiment over the direction of the 10-year Treasury note.

Futures trading on the 10-year U.S. Treasury Note Volatility Index (ticker VXTYN) began a week ago, about a month too late for October's whipsaw activity in government bond yields but still plenty ahead of the real action in rates that should start once the Fed begins the expected normalization process in 2015.

The index itself is figured off options trading at the Chicago Board of Trade and measures put and call activity in much the same way as the CBOE's more popular product, the , which is a Wall Street favorite for measuring fear gyrations in the market. The CBOE actually began charting the bond VIX movement in May 2013, but only added a trading option this month.

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"We're excited to tap into this space for the first time with a product that will enable customers to better manage interest rate volatility risk," CBOE chief Edward T. Tilly said in a statement.

The 10-year note VIX is tied more specifically to changes in the benchmark's price rather than yield.

Interestingly, despite all the unexpected twists and turns—besides the market mayhem on Oct. 15, the market consensus whiffed this year on expectations for rising yields—the 10-year VIX is essentially unchanged over the 12-month period. The index fell 1.7 percent in Thursday morning trade even as the 10-year price was little changed.

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The trade will be of interest to "mortgage-backed securities investors and other large credit managers seeking to hedge against adverse interest rate movements; large bond funds that are naturally long interest rate volatility and are seeking a yield-enhancing mechanism; and hedge funds, volatility arbitrage firms and global macro participants seeking to express their views on forthcoming monetary policy events or to capture mispricing anomalies between cross-asset volatility (e.g., fixed income versus equity volatility)," the CBOE said in a news release.

In all, the CBOE offers nine contracts related to its VIX instruments, covering multiple equity indexes as well as commodities including gold and oil.