Market Turmoil Gives Millennials Their Very Own 2008-Style Crash

(Bloomberg) -- For a new generation in global finance, this week’s market carnage has been baptism by fire.

“A lot of us hadn’t seen this type of crash in our careers,” said Justin Wilder, a 31-year-old research analyst at DRW Holdings LLC in Montreal. “There’s definitely some nervousness on the floor, both for the trading and our health.”

Gauges of turbulence rocketed to multi-year highs, shattering a calm in markets that participants found frustrating. They’re now having to adapt to a whole new beast: wild fluctuations that are tearing up targets and strategies.

Stocks plunged, and money rushed into havens such as government bonds, sending yields on some U.S. Treasuries to record lows. Almost every currency tracked by Bloomberg saw its one-week implied volatility rise in the five-days through Friday. And expected turbulence in the euro over the next year advanced in its longest streak since the currency’s creation.

“It’s been mental, and that’s probably an understatement,” Rishi Mishra, a 29-year-old research analyst at Futures First, said in an interview Friday. “Many of us who weren’t trading during the 2008 crisis see this as one of those days you could tell your grandchildren about.”

Shifting Strategies

For those without protection, the turbulence means increased hedging costs in options. It could be a tough weekend for stock traders who tried to hedge with gold on Friday. But those shorting stocks and going long U.S. Treasuries may be celebrating.

A little over a month ago, global currency volatility sank to a record. Investors explored alternative strategies in their quest for yield, including searching for bargains in emerging markets.

But by Friday, concerns over the economic impact of the coronavirus had upended global markets.

Every developing-nation currency fell against the euro on a weekly basis, and a gauge of U.S. bond swings surged to a four-year high. Money markets were pricing in the possibility of a Federal Reserve emergency rate cut, its first since 2008.

Of course, it’s not everyone’s first taste of markets gone wild. But the Brexit vote, 2018’s volmageddon and the Fed’s first rate cut in more than a decade were largely greeted with stoicism by a generation of traders groomed during an era of easy money.

“With coronavirus, the market has found a reason to correct in a way that I’d never seen before,” said Julian Carvajal, a 30-year-old foreign exchange trader at TCX Investment Management Co. BV in Amsterdam.

He’s been trading currencies for only a year-and-a-half. But even experienced hands were taken aback by the sudden jolt.

“Not too long ago we were bemoaning the fact that there was very little volatility in the foreign-exchange market,” said Steven Barrow, the head of currency strategy at Standard Bank, who’s been in the business for decades. “Now there’s too much!”

--With assistance from Vassilis Karamanis and Anil Varma.

To contact the reporter on this story: Greg Ritchie in London at gritchie10@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, William Shaw, Neil Chatterjee

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