A little less than a month ago in “Two Years Later, The VaR Shock Is Back,” we outlined the similarities between the recent bout of bund selling and similar instances of safe haven havoc that have unfolded in the past.
More specifically, we discussed two self-fulfilling feedback loops that likely contributed to the sell-off. One of those self-feeding dynamics is known as a “VaR shock” and the concept is really quite simple. Here’s how we described it: