European interest rate volatility hits record highs as algorithmic trading intensifies market turbulence during wartime

Golden Ten Data reported on March 31 that, according to foreign media, the European interest rate market is heading for its most volatile month on record. The euro two-year interest rate swap, which is used to bet on central bank policy prospects, saw historic swings in March, while the equivalent UK contract registered its sharpest turbulence since the sell-off in 2022 that led to former Prime Minister Truss’s resignation. The speed and scale of market changes have led some fund managers to attribute the reasons to a greater role being played by artificial intelligence and algorithmic trading. In recent years, hedge funds that rely on algorithmic models for trading have seen their influence grow in both bond and foreign exchange markets. These funds, known as CTA, typically increase positions when trends strengthen but can also quickly reverse when momentum shifts. Michael Sneyd, head of cross-asset and macro quantitative strategy at BNP Paribas, stated: “Since the beginning of this year, CTA positions in European government bonds have experienced extreme volatility.” Hamza Hoummady, head of European rates trading at Barclays, said that powerful AI models enable markets to react to news more quickly, thus increasing decision-making speed. “But I also believe this, to some extent, exacerbates market volatility.”