Wildest day in four years on bond markets last Wednesday and a ‘flash crash’ so what next?
arabianmoney.net / 21 October 2014
Bond markets are supposed to be safe havens as equities sell-off but not so last week. On Wednesday there was a ‘flash crash’ in yields with 10-year treasury yields falling 34bps to 1.84 per cent, before rallying to 2.15 per cent in the same session.
Then on Thursday core bond yields plunged and peripheral European yields spiked before reversing course. This is as wild as it gets in bonds. Markets are unhinged. Falling oil prices are leading to a liquidation of risk assets across the board and another major concern is the end of QE3 money printing later this month.
Structural change
What seems to be happening is something structural. The risk premium traditionally attached to bond markets where there is a possibility of default is rising – like Greece – and investors are moving into the ultra safe core bonds of Germany and the US. Credit costs are going up in many emerging markets and that enhances the risk of default somewhere.
More posts from
