Dealing with extreme volatility
While most of Australia slept, in the early morning of Thursday 16 October northern hemisphere investors experienced a bout of volatility not seen in many years.
Reacting to a wave of disappointing economic data, fears of Ebola and comments from the US Federal Reserve taken to mean that interest rates may rise notwithstanding what is happening in the rest of the world, investors rushed for the safety of US bonds.
Just as quickly investors moved on, causing yields to rise again (and allowing the S&P 500 to recover from its 3% intra-day losses).
In the Australian morning, anyone looking at the figures may have thought it was just another day in the US. However, US 10-year Treasury yields dropped from a high of 2.17% to a low of 1.86% in just over an hour, only to recover to 2.15% late in the trading session. Volumes were larger than at the height of the GFC and easily out stripped the 2010 ‘Flash Crash’.
Investors had to move fast to protect their positions, or, if they could, take advantage of the volatility.
Vimal Gor, Head of Income & Fixed Income at BT Investment Management, speaks about how the portfolio was positioned heading into the trading session and what he has learnt from that night about the current state of the markets.