Risk Parity Deleveraging “Worth Monitoring” Across Markets: BAML

As markets continue to remain skeptical of a 2016 rate hike, a Bank of America Merrill Lynch volatility research report notes that latent risk in risk parity strategies is “worth monitoring” across markets. Last week’s sharp sell-off in Japanese bonds stoked fears among investors that forced selling by risk parity funds might spread in an ever more globally interconnected world.

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Certain risk parity funds are leveraged to the maximum level, which should be cause for monitoring

Ultimately last week risk parity funds ended up not deleveraging. While the Japanese interest...