In mid-March, as prices for U.S. Treasury bonds swung wildly following the collapse of Silicon Valley Bank, the trading desk at Legal & General Investment Management hit its top limits for both profit and loss several times in a single day.
"We'd be swinging from our profit-taking target to our loss tolerance level and back again, a couple of times within a 24-hour period," said Chris Jeffery, head of rates and inflation strategy at LGIM, Britain's largest asset manager.
Bonds can be volatile, acknowledged LGIM's Jeffery, citing sharp, fast moves in Italian, UK and emerging market debt within the last decade. The woes in the banking sector, including Credit Suisse's takeover by rival UBS, have further clouded the rates outlook, leaving government bonds vulnerable to further price swings.Shares in troubled U.S.
Citi's head of euro linear rates trading Zoeb Sachee said bond traders were at a "crossroads", unsure whether central banks would deliver more rate hikes to curb inflation or hold off to avoid creating financial stress. This meant he was reducing the risk he was taking on a daily basis, Madziyire said, adding he found it harder to trade $100 million of 10-year bonds "because no one wants to be locked into a $100 million position".
Traders said they were not concerned about the long-term functioning of the bond markets, but warned they remain vulnerable to further bouts of extreme volatility, especially while the policy outlook is uncertain.
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