MNI: The increasing reliance on algorithmic models...>

MNI: The increasing reliance on algorithmic models could be creating a major

risk of market disruption by underpricing geopolitical risks, the Australian

Financial Review warned in a report Wednesday. The more investors rely on such

models, the more likely it is that the algorithms with resemble each other - for

instance, by responding more to changes in the outlook for interest rates than

to growing geopolitical risks, the report argued. On Tuesday, the yield on

benchmark 10 year U.S. Treasury bonds slumped to a 2017 low of 2.07% even as

investors were stocking up on "safe haven" assets - such as bonds and gold -

amid rising tensions between the U.S. and North Korea. Some analysts worry that

U.S. bond yields are reacting more to the comments by Federal Reserve officials

than to the threat of a military confrontation with North Korea, indicating

there is a major, algorithm-induced mispricing of risk in the financial markets.

This, in turn, could run the risk of a situation like that in 2007, when

algorithm-based trading by LTCM and other firms caused a market crash that

required government intervention, the report argued. (Australian Financial

Review)