Global Money Notes #28 Lombard Street and Pandemics
Comment of the Day

March 18 2020

Commentary by Eoin Treacy

Global Money Notes #28 Lombard Street and Pandemics

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Eoin Treacy's view

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A point I have made repeatedly over the years is understanding how volatility shapes the size of positions in quantitative funds is essential to understanding market structure. The funds which deploy high leverage by betting on low interest rates and record low volatility look like geniuses when times are good but the deleveraging that arises from a spike in volatility can have a swift effect on both performance and the wider market.

Volatility on both equities and bonds is surging. At the same time the inverse relationship between bonds and equities is breaking down. That is particularly deadly for the much-vaunted risk parity strategy which is experiencing its biggest drawdown in years.

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