“Up in the city, I tried for a while to list the quotations on an interminable amount of stock, then I fell asleep in my swivel-chair. Just before noon the phone woke me, and I started up with sweat breaking out on my forehead.”
Those are the words of Nick Carraway, narrator of The Great Gatsby. He was a bond salesman on Wall Street in the early 1920s. And bond traders today will have felt a similar sense of feverish panic as gilt prices plummeted following the UK government’s mini-Budget last month.
The chart above shows the extraordinary volatility of the 2073 UK conventional gilt during the last week of September. We witnessed daily returns of -5%, -7%, -13% and then a further-13%.
Gilts, used as a means of mitigating risk and providing steady and reliable returns, exhibited characteristics more commonly associated with the most speculative of assets – growth equities or even cryptocurrency.
The fluctuations of long-dated government debt served as a timely reminder of the duration risk pension investors take on when they purchase these assets. Duration risk can be, and at times will need to be, carefully managed in portfolios.