It’s been a long time coming, but the week(s) of reckoning have finally come for CTAs and the risk parity crowd.

Of course the “serious people” reading this will say the “day of reckoning” bit is hyperbolic.

After all, we haven’t seen a sustained vol. spike of the sort that would probably be required to cause a truly painful unwind where “truly painful” means “something people who don’t know what CTAs and risk parity are” would notice.

But the important thing about what we’ve seen over the past couple of weeks is that it illustrates the interplay between two of the most talked about systematic strategies and the delicate situation central banks are trying to negotiate as they roll back stimulus.

A coordinated hawkish lean from central bankers that began with Mario Draghi’s “we’ll look through transitory weakness in inflation” comments that hit two Tuesdays ago and one seemingly innocuous trigger event (a weak French 30Y auction) conspired to create what might fairly be called a “mini-tantrum” in DM rates over the past two weeks and that’s spilled over into equities.

Here’s the “mini-tantrum” with the two events noted above highlighted in red:

And here’s a modified version of a popular meme to explain:

Well, as Goldman put it on Monday, “rates are currently part of the risk to equity, rather than the support.” That’s the whole reason why people are concerned about rapidly rising DM rates. Because rates have been so low, for so long, the so-called “tantrum threshold” has been reduced. Or, in other words, the level beyond which rates must rise to trigger a concurrent selloff in equities is lower than it once was.

Ok, so with that in mind, consider this from Bloomberg’s Dani Burger:

Here’s a look at SocGen’s CTA index (mentioned above):