Europe’s bond investors, caught between a central bank raising rates for the first time since 2011 and the prospect of a recession are braving some of the wildest swings on record by some metricsThe yield on Germany’s benchmark bond has oscillated 10 basis points on almost 80 days this year something that happened only once in 2021. Hedging costs across“Rates volatility has seen an explosion in activity,” said Phillip Pearce, an associate at Validus Risk Management.
The fallout is palpable. Investors say it’s becoming more difficult to execute orders in some corners of the market. European companies are reluctant to issue debt or buy prohibitively expensive protection against price swings. While volatile conditions are what traders usually dream of, some market players are hesitating to take on larger positions, creating a self-amplifying cycle of deeper swings as liquidity dries up.
Since April, the German two-year yield has ended the day 20 basis points lower three times and 20 basis points higher onceFocus for the week will be on the US CPI figure due out on Wednesday whilenvestors will also get to hear from several Fed speakers, with policymakers under renewed pressure to deliver a third 75 basis point rate hike at their upcoming meeting in September.
We also have the final inflation numbers from Germany being released on Wednesday which could give more direction for investors moving forward.Source: TradingView
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