Bond markets have become so volatile that Wall Street is looking for new ways to appropriately gauge risk.
Last week, the yield on a German 10-year bund passed 1% for the first time since September. Only a few weeks before, the yield was down to .05%.
And this kind of volatility has made it more and more difficult for investors to calculate bond risk.
According to Bloomberg, BlackRock is responding by creating new “worst-case scenarios.” These models assume even more volatility in order to test the riskiness of their holdings with varying levels of correlation among asset classes.
“The German bund market is incalculably volatile,” BlackRock’s Scott Thiel told Bloomberg. “It doesn’t make sense to measure it in traditional respects.”
Wall Street remains quite worried about the bond market. One of the biggest fears is that the “taper tantrum” of 2013 will repeat itself. That is, as the Federal Reserve prepares to finally raise rates again, they’re hoping to do so in a way that won’t further increase the volatility in the bond market.
But even so, Wall Street is re-assessing what it thinks about volatility at all.
Business Insider Emails & Alerts
Site highlights each day to your inbox.