Excerpt: Given this backdrop, the risk of counterparty default in many tail-risk options that are now probably deep in the money isn’t negligible -- though we won’t hear about it immediately. As I have observed before, the first shoe to drop during the financial crisis was in early 2007, but it wasn’t until late 2008 that some of the events that are most recalled about the episode took place.
That means that daily moves of 10 basis points in key developed-market bond yields and swings of 1% in G-10 currencies aren’t going to go away anytime soon. Not to mention U.S. stocks, which until recently behaved like they were immune to all laws of financial gravity and had a special license to thrill.
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