All eyes were once again on the rates complex Thursday, as traders and investors of all shapes and sizes obsessed over a bond rout that generally refuses to abate.

The locus of the pain was gilts, which repriced sharply in an eyebrow-raising selloff+. Treasurys were comparatively calm, for a change.

When taken with the simultaneous correction in equities this month and last, the inability of duration to sustain a bid (or really even catch one at all) is prompting “breathless” speculation about a risk parity unwind, Nomura’s Charlie McElligott said Thursday, describing “daily” queries from traders.

Anytime stocks and bonds are selling off together you get people speculating on de-leveraging from the RP “kraken.” Instances of acute, rapid risk parity unwinds are rare. That space isn’t a first-mover, so to speak. You need a combination of high exposure and high, sustained portfolio vol.

If you ask Charlie, that’s not what’s going on right now. “I continue to believe the more impactful ‘flow issue’ may in fact sit within the insurance / lifer space, as that universe is sitting on a hot mess of substantial unrealized losses in their portfolios, particularly from any and all UST purchases made over the course of the past year,” he said.

To reiterate: Dialing up duration at any point over the last 12 months left you with losses. Substantial losses in many cases. That means different things for different buyers.

Charlie went on to note that this year’s real money buying in duration risks a synthetic short gamma dynamic in which, as he described it, “‘sellers are lower,” reducing duration in “capitulatory” fashion or else “aggressively hedging into the selloff.” Of course, aggressive hedging would create “actual negative convexity in the market,” McElligott was quick to note — incremental selling would engender more selling into the proverbial hole.

As far as equities, you don’t need to resort to the risk parity campfire story to explain why stocks were weak recently in the face of the worsening bond rout. “If 2.30% 10-year real yields and 4.60% nominals are the new norm, then the forward path of equity valuations becomes further skewed to the downside,” BMO’s Ian Lyngen and Ben Jeffery remarked.

I’ve said it a thousand times if I’d said it once, and I’ve damn sure said it once: Rapidly rising real yields are very difficult for richly-valued equities to stomach, and even harder for long-duration equities to countenance.

The worst-case scenario in that regard is a dramatic rise in reals set against an equity rally predicated entirely on valuation expansion for heavily-weighted growth stocks. So, in other words, what we’ve seen over the past several weeks (looking back to early August), is a worst-case scenario.

Seen through that lens, it’s entirely fair to say “It could’ve been worse,” if not necessarily for bonds, then certainly for stocks. And it may still get worse.

“What’s next? First, we expect the market to be more volatile, and we see the VIX’s levels earlier this summer as a technical aberration rather than reflective of macro fundamentals,” JPMorgan’s Marko Kolanovic wrote. “Medium-term we remain negative and find the risk-reward in equities and credit spreads unattractive relative to a fixed income alternative (cash),” he added. “This will likely remain the case as long as interest rates remain in deeply restrictive territory and the overhang of geopolitical risks persists.”

Lyngen and Jeffery offered a word or two of caution. “Let us not forget that the stock market in October can be an inhospitable place,” they said. “The risk is that the slide in equities has only just begun and the FCI tightening quickly accelerates to the point that a soft-landing ceases to be the market’s default assumption.”

On the bright side, a hard landing should help the beleaguered US long-end. Or not.