Wall Street’s Alchemists Turbocharged Wild Swings in Treasuries
- Placid financial markets fueled surge in low-volatility wagers
- Scramble to hedge exposures is exacerbating rates swings
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Over the last decade, as rock-bottom interest rates depressed returns on fixed-income assets, the alchemists of Wall Street came up with a solution for investors who needed fatter yields: a whole series of complex products that spun extra basis points out of comatose markets.
Now, amid the worst bond rout in at least five decades, firms have been scrambling to hedge their positions, piling into derivatives that benefit from higher volatility as they seek to limit the damage.