Gilts Aren’t Only Besieged By Bond Vigilantes
Risk managers at dealers, clearinghouses and hedge funds are also to blame for the selloffs in Treasury and gilt markets.
A gloomy week.
Source: Bloomberg
Everyone’s on the lookout for bond vigilantes angry about government spending plans to blame for the lurching selloffs in Treasury and gilt markets, but the culprits are just as likely to be the risk managers at dealers, clearinghouses and hedge funds.
Government bond markets have become much more reliant on investors that use significant amounts of borrowed money — aka leverage — to fuel their activity. In this world, volatility can feed on itself and that makes shifts in market sentiment more dramatic and potentially destabilizing. For governments trying to stick with consistent fiscal plans, that can be a major headache, which is a pain for taxpayers, too.