“If you break through that 3 percent, 3-and-a-half percent, those real psychological barriers in the 10-year, then you start to see the ripple effect,” Emad Mostaque, co-chief investment officer at Capricorn Fund Managers Ltd., said in a Bloomberg TV interview. “A lot of the classical spreads that we’ve seen, for example euro junk bonds to U.S. 10-year, those have just gone crazy and weird. And they have to normalize eventually just on a fundamental basis.”
One of the first indications has been the slide in the Turkish lira, according to Mostaque. The currency has weakened about 18 percent against the dollar this year amid concerns about an overheating economy, Turkey’s vulnerability to higher global interest rates, and economic policies under President Recep Tayyip Erdogan.
“The unwinding of risk is following its expected path,” Atwater wrote. “Over the past six months, we’ve seen an unwinding of cryptocurrencies, the short vol. trade, emerging markets (stocks, bonds and currencies) and now Italy -- the perceived weakest after Greece in the eurozone. The worst and most extreme have gone first.”
This article was provided by Bloomberg News.