Financial markets are not broken.
We have in the past five trading days seen unprecedented price swings in nearly every asset class, including moves in major foreign currency prices that, statistically speaking, should only happen every few millennia, and seemingly conflicting valuations across theoretically identical groups of securities.
Okay, perhaps financial markets are a little broken. But more saliently, the capital normally deployed to “right” otherwise divergent financial relationships is simply missing. Nowhere is this more evident than in fixed income markets. We’ll take a moment to review some of the incredible price swings, provide a thesis for some of the underlying causes, and share thoughts on how this market dysfunction resolves.