..or simply the usual revaluation of an ordinary vulnerable country in a period of export euphoria..
“A benchmark should be a reference point, a standard against which other assets can be valued and representative of the broader universe in every way. Bunds no longer fulfil those criteria,” he says
Mr Schofield says realised volatility in Bunds is now higher than in most of the other eurozone markets and their yields are significantly out of line relative to the fundamental backdrop – he estimates by about 30 basis points.
“Discounting risk premia using an overly volatile, excessively low interest rate ‘benchmark’ is hugely problematic. In the recent spread widening we estimate this effect to be responsible for up to 50 per cent of repricing.”