- Global Margin Call Hits European Debt Markets
by DAVID P. GOLDMAN, https://asiatimes.com/
Hedges blow up after risk gauges in Germany’s government debt market exceeded those of the 2008 world crash
NEW YORK – Risk gauges in Germany’s government debt market rose last week to levels higher than recorded in the 2008 world financial crash, as margin calls forced the liquidation of derivatives positions held by banks, insurers and pension funds.
Big institutional investors that spent the past ten years insuring their portfolios against falling interest rates now face massive losses as hedges blow up. A key measure of market risk, the spread between German government bonds (Bunds) and interest rate swap agreements jumped above the previous record set in 2008.
The cost of hedging German government debt with interest-rate options, or option-implied volatility, meanwhile rose to the highest level on record.
The blowout in the euro derivatives market follows a near-collapse of the British government debt, or gilts, market, averted at the last minute by a 50 billion pound bond-buying spree by the Bank of England.