Interest rate volatility shows the risk in terms of duration
The surge in 10-year Treasury yields during the last week of February briefly gave the impression that it could burst the bubble of everything in the stock and bond markets that central banks have inflated in their desperate efforts to limit the cost of servicing the inflated public debt.
Mark Haefele, investment director of Global Wealth Management at UBS, suggests: “Rising real returns, rather than expectations of inflation, were responsible for the increase, and it is the speed of the movement rather than the level of yields that pissed off the markets.
But then, just as suddenly, the storm broke loose. March began with a resumption of the equity rally and a $ 23 billion investment grade US bond issue on the first day of the month.
It’s almost as if everyone in the markets now wants to pretend that February’s great bond rout never happened.
However, it would be unwise to relax.
“Rate volatility has been at the heart of concerns for credit investors,” said William Weaver, EMEA Debt Capital Markets Manager at Citi Banking, Capital Markets and Advisory.
“Rate volatility has unfolded in two phases this year: first with a rise in nominal rates, but real rates still anchored around -1%, reflecting hopes of a strong economic recovery.