Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Just another trading day: Wild swings and dash for cash trigger selling

EconomyMar 18, 2020 09:46PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

By Karen Brettell, Megan Davies and Karen Pierog

(Reuters) - Another day of massive swings across asset prices was marked by scant liquidity as investors dashed for cash while systematic strategies triggered automated selling amid rising volatility, market participants said.

Wall Street deepened its selloff, with the S&P 500 now down about 29% from its Feb. 19 record high, while U.S. Treasury yields surged. The market has been swinging wildly since the coronavirus started spreading in the United States.

“I really believe that most of what’s going on in the bond market is liquidations to offset losses in equities," said Tom di Galoma, managing director at Seaport Global Holdings in New York.

"We’ve seen a massive decoupling of the ‘risk off’ trade, where stocks trade off, bond prices would rise, which leads me to believe that liquidations are taking place, raising as much money as they possibly can,” he said.

As the spread of the coronavirus forces businesses to shut and people to hunker down at home, some companies are facing cashflow or credit problems. That has caused a massive repricing of stocks and bonds that has hit trades that relied on low volatility and rising stocks.

"People are selling what they can sell" such as high-quality bonds, because other assets are less liquid if they need to raise cash, said Jim Caron, senior global fixed income portfolio manager at Morgan Stanley (NYSE:MS) Investment Management.

Some of the selling pressure of the last few days' trading was blamed on systematic trades, including a numbers-crunching investment strategy called risk parity that takes long positions in both stocks and bonds. But while such strategies aim to spread risk out among asset classes, prolonged volatility can push their automated programs to begin selling all at once, adding fuel to a decline.

“Risk parity was the trigger for a lot of these moves,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “You are in this environment where it is machines against machines.”

Managers of risk parity funds have said their strategies are not responsible for the recent swings.

“The trading done by risk parity managers, especially on a daily basis, is trivial in the context of markets and is having no impact,” said Michael Mendelson, principal at AQR Capital Management.

Risk parity is most associated with Bridgewater Associates LP, the world’s largest hedge fund, which has its risk-parity All Weather Fund. Bridgewater’s All Weather (12% vol) fund net performance this year was down about 14%, according to a letter sent to clients on Wednesday. Bridgewater did not respond to a request for comment.

Assets managed by risk parity strategies total between $300 billion and $400 billion, Deutsche Bank (DE:DBKGn) strategists estimate. That compares to $17 trillion for the overall U.S. Treasury market and an equities market of around $21 trillion. A wider measure of strategies that react to changes in volatility totals about $1 trillion, analysts estimate.

An onslaught of selling from these funds could be enough to deepen market declines, some investors said.

Nick Maroutsos, co-head of global bonds at Janus Henderson Investors, said the illiquidity was partly due to “the unwind of the risk parity trade, investors trying to hedge in a very broken market," and other factors.

Where it ends, few are willing to guess - beyond predicting it will be when the coronavirus numbers are under control and hoping that actions by the Federal Reserve to pump liquidity into the system eventually work.

"I think a lot of the maneuvers they've made in the last little while will unleash an unholy amount of capital from bank market makers," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. "It just takes a little time to work its way into the system."

Just another trading day: Wild swings and dash for cash trigger selling
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
First Last
First Last Mar 19, 2020 1:30AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
People are dashing for gold and silver like nothing before and those are both going down. Please explain that.
cristian gonzales
cristian gonzales Mar 19, 2020 1:30AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
dollar has more value , central banks are lowering their coin vs the dollar = more dollars they need for what they had pay before . the commodity is the dollar , gold subquencial is displaced as doesn't have a value of trade .
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email