Rising Mortgage Rates And The Next Shoe To Fall: Mind The Bond Market Convexity Hedgers!

…… traders are increasingly worried, after the worst week for stocks since Jan 2016, what further Treasury selling could mean for equities as a result of a potential violent deleveraging of risk-parity strategies, which will be forced to significantly reduce their gross exposure following last week’s drubbing. Yet with everyone’s attention now on deleveraging risk-parity funds, as well as momentum-chasers and CTAs “wreaking havoc” in the short-end, there is one potential source of Treasury selling that the market has largely forgotten about: convexity hedgers.