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Global margin call hits European debt markets

Asia Times | October 9, 2022

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.

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