Macro Tourist Presents: The World’s Biggest Steepener

Read more from The Macro Tourist   It's been a while since I have written about German bunds and other nuttiness in the European fixed-income markets.  Although I am still long-term kodiak-grizzly-bearish on European bonds, I have had the good fortune to make friends with Mattia Parolari from Barclays Bank in Paris.  Mattia is an institutional rates strategist specializing in European fixed-income.  We have had numerous Bloomberg chats where he has patiently explained the problems i

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2 thoughts on “Macro Tourist Presents: The World’s Biggest Steepener

  1. heres what happened to life insurers in August. There was no initial mismatch of assets and liabilities. However, life insurers assets and liabilities have different convexity. When rates fall, on the asset side, you see more prepayments on MBS and callable bonds, this shortens asset duration. On the liability side, a fall in rates makes financial guarantees more in the money, so as rates fall you see lower lapses and withdrawals and this increases liability duration. The net effect is that life insurers needed to get long duration to bring their assets/liabilities back in line, hence the frantic collapse in the long end. You get the opposite effect when rates rise too fast.

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