Five lessons from today’s bond market turmoil

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There are echoes of 2007: an interconnected system is highly exposed to what is happening in a murky corner of finance

Until recently, the so-called “$TLT” exchange traded fund — which tracks long-term Treasuries — seemed dull as ditchwater. The price used to move in tiny increments with modest trading volumes, making it suitable for widows and orphans — risk-averse investors, in other words. Not now. On Tuesday there were 71mn daily trades of the ETF, many times higher than usual.

One factor that seems to be affecting market sentiment is a fear that Japanese investors could sell Treasuries to buy yen assets if the Bank of Japan lets its 10-year yield rise above 1 per cent. Another is China. Some analysts, such as Torsten Slok of Apollo, think that the Chinese are reducing US Treasury purchases, either due to geopolitical tensions or because of financial strains at home.

 

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Bond market gyrations are yanking us into uncharted territoryThere are echoes of 2007: an interconnected system is highly exposed to what is happening in a murky corner of finance
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