How CROs can use AI to manage bond market volatility

Fixed-income markets spent most of the past month in a holding pattern despite headline-grabbing developments. For example, Federal Reserve Chair Kevin Warsh oversaw his second Federal Open Market Committee meeting on July 29, where he moved to curb the forward guidance, keeping market makers guessing the Fed’s next move. Warsh will host another FOMC this week and provide insights on the Fed’s outlook. Treasury Secretary Scott Bessent moved to intervene in the bond market on July 31 and an ongoing fallout from the Bank of Japan 's shifting stance on U.S. bonds. Bessent deployed over $10 billion in August to shore up the value of Yen and disincentivize BoJ from dumping long-term bonds into an illiquid market. Bankers, traders and technologists tell FinAi News that the bond market is facing a major upheaval that has banks' chief risk officers looking to mitigate. Turning to AI to do it. "It's been really interesting because I wouldn't necessarily say that our volumes diverged significantly given what was happening with the macro environment," Izzy Conlin , head of strategy and solutions for global markets at trading platform service provider Tradeweb , told FinAi News . “You did have a little bit of a jump in rates just because of the Warsh conversation and sort of the Bessent going into the marketplace ... but it was nothing drastic or huge relative to what we see for the rest of the year." As Bessent looks to front load the yield curve to better manage the nation’s ballooning debt, and Warsh provides hawkish comments on taming inflation, the job of the chief risk officer has become more proactive, Conlin said. Many FIs are “actively managing the portfolio of risk items that they have [on their balance sheets] by using AI,” Mike Reynolds , business technology executive at KeyBank , told FinAi News . “I think that's a trend that we'll see more of. It's just starting to happen.” Portfolio managers and CROs are very hesitant “to put AI directly in front of a customer,” he said. “But the [opportunity] is huge when you got a human in the loop.” Aid of AI AI can help CROs manage risk, experts tel l FinAi News. “I think that the chief risk officer function has been using more AI in doing what they typically have been doing over the years,” Conlin said. AI application to manage risk include: Surveillance: Unlike traditional AI, gen AI can help CROs stay on top of events in a world where a tweet can move global markets, Charles Poliacof , chief commercial officer at fintech Finster AI , told FinAi News . “In a world where AI is less pull-based and much more push-based, signals can trigger workflow suggestions around the next best action,” Poliacof said. “A lot of the signals nowadays are unstructured data, where gen AI tends to perform better than traditional AI.” Many FIs are developing models that can help them in “getting in front of risks sooner and faster” rather than being reactive, Poliacof said. Portfolio analysis: AI can help CROs constantly evaluate their portfolio with ever-changing geopolitical and geoeconomic situations, Tradeweb’s Conlin said. The tech can help identify “blind spots” in a portfolio that can create problems, Poliacof said. Banks are using “AI to connect risk across all bonds in their portfolio, which they couldn't do earlier,” Pierre Buhler, managing director of financial services practice at consultancy SSA , told FinAi News . “They are using gen AI fundamentally to understand how the risk could permeate from one side of the portfolio to the other and how it's connected to other sides.” Simulating scenarios: As bond markets become more volatile, FIs are also leaning on AI to help them run event simulations to see what impact there is on their portfolios, financial data company 3Forge ’s Chief Executive Robert Cooke told FinAi News . AI can quickly run cascading queries, understand risk and provide potential outcomes of how a certain event might affect the portfolio. Hedging: AI can suggest hedges that can be used to prepare for the worst, Conlin said, by looking at historical patterns and suggesting ways to mitigate risk. Register here for the FinAi Lending Summit, set for Oct. 7-8 in Las Vegas. This inaugural event will include speakers from Fifth Third and Capital One , as well as a fireside chat with Piermont Bank founder and Chief Executive Wendy Cai-Lee .

How CROs can use AI to manage bond market volatility

Surveillance, analysis and hedging among top use cases for AI

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How CROs can use AI to manage bond market volatility

Surveillance, analysis and hedging among top use cases for AI

Anthropic pitches new Claude tool for financial advisers

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