Bond market shaken, not stirred - the life of a trader

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James Bond actor Roger Moore with a drink and a cigarette
Image caption,
Licence to trade

As the European financial markets open, numbers on the flat computer screens go red and the air in the fifth floor office simultaneously turns blue.

"Oh god!", comes a shout from an opposite desk.

"You're taking the mickey," growls another work mate. "This is pathetic."

Markus Jarnefelt apologises for some of the language hurtling around the office, most of which is far too fruity to repeat.

"I'm usually doing plenty of swearing as well," he confesses. "But today I'm on my best behaviour."


Emotions have been running high among Mr Jarnefelt and his colleagues at CFT Financials in London's Square Mile.

As fixed income traders their main business is buying and selling bonds - IOUs issued by companies and especially governments.

While the ups and downs of shares regularly appear on television bulletins and radio broadcasts, developments on bond markets are not so widely watched.

But recent volatile movements of bond prices, - particularly those issued by governments such as Spain, Portugal and especially Greece - have put the spotlight on the world of bond trading.

They are also offering chances for Mr Jarnefelt and his colleagues to make, or lose, small fortunes.

'Credit card rate'

Selling bonds - also known as sovereign debt - is how governments borrow money, issuing these IOUs to be repaid after a fixed period of time.

And if there are worries about the ability of a country to meet those debt obligations, the interest rate it must pay in order to borrow that money goes up.

It is like the way a bank will charge you a higher rate of interest on a loan, if you have a bad credit rating or have a history of missing payments.

Fears that Greece could not cut spending and increase revenue sufficiently to resolve its financial crisis prompted one credit rating agency to downgrade the country's debt to junk status - essentially recommending people should not loan money to it.

This pushed the rate, or yield, that investors would receive on Greek bonds, to a punitive 15%.

That later fell - reflecting a slight improvement in investors' confidence that Greece's bail-out rescue package from the EU and the IMF would go through, as it eventually did.

However those rates remain prohibitively high - meaning trading has almost completely came to a halt.

There is more appetite for bonds from Argentina or Venezuela - two nations not exactly renowned for their good financial management - than there is for Greek debt.

Traditionally, if stock markets are in trouble then investors sell out of equities and into bonds - especially government bonds seen as a safer, steadier investment.

But this link is not being seen so strongly right now, says Mr Jarnefelt, particularly with Portugal, Spain, Ireland and Italy whose finances have all been questioned.

"It's easier to bail out a bank than to bail out a country so people are nervous about going into bonds," Mr Jarnefelt says.

German stability

In front of his bank of screens, his job is to use the firm's money (rather than clients') to buy and sell bond contracts - trading with a range of unknown investors - from individuals to banks and hedge funds.

Some of his colleagues trade in currencies and commodities but there are no physical transactions taking place - all deals are done electronically at the click of a computer mouse.

Mr Jarnefelt's specialist area - German government bonds - is among the most stable in the market because, along with those issued by the US (called Treasury bonds), they are seen as among the lowest risk in the world.

He rarely holds the bonds for long. Indeed for this trader at least, the typical strategy is to ensure that, by the end of the day, all the bonds which have been bought at some point, are sold.

If this can be done for more than was paid, then he makes a profit.

'Information is everything'

Over the public address system in this unremarkable office, a service known as Squawk carries a steam of updates, economic data and corporate results

It has a passing resemblance to the drone of commentary and lists of runners and riders ever-present in a more familiar gambling house - the William Hill bookmakers shop, just a few doors down.

"They try to be as monotone as possible," Mr Jarnefelt says of the voices being piped into the room, "because if they get too excited it can make you jump out of your seat."

He relies on such data as well as a stream of analyst reports, plus emails and instant messages from other traders as they try to get to the bottom of market rumours.

For traders, says Mr Jarnefelt, "information is everything" though as long-term investments, bond prices are particularly sensitive to events with long-term impacts.

So the progress of the emergency plan to bail out Greece's economy is being keenly watched here. Such developments can prompt sudden moves in prices and so being able to react quickly is often where money is made.

"When you have these stagnant periods of slow, steady market rallies, and no interest rate moves on the horizon, it hurts the bond market because there's nothing happening.

"This whole Greek issue is good for us," he admits.

"Volatility breeds opportunities. It's a beneficial thing for trading bonds."

Election impact

So far, despite its deficit being at a similar level to Greece's, the price of UK-issued bonds (known as gilts) has shown little significant fluctuation - with its debt woes widely considered nowhere near as bad as those in some other parts of Europe.

But there are reports that some firms have ordered their bond traders to start work at 1am on Friday, given the unclear outcome of the UK general election the previous day.

"Nobody likes uncertainty and this is true with the UK in particular, given the prospect of a hung parliament," Mr Jarnefelt says.

"That has the potential to weaken the government's response to its own debt problems, so investors are waiting to see what happens."

Whatever the outcome of the vote however, you have a suspicion that in this office, like in pubs, households across Britain, the election result will prompt some swearing.

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