The move started in Australia, where bond futures fell heading into the market’s close to put modest pressure on Treasuries. At around the same time, there was a block sale of 10-year ultra bond futures, followed by a buyer of downside put options -- the hedging of which tends to weigh on the market. The three combined to tip 10-year Treasury futures through Thursday’s session low, which unleashed the wave of selling.
As many as 20,000 contracts changed hands in the next five minutes, the largest activity of the day. The speed and severity of the move left many traders perplexed, with volumes in the cash market comparatively modest.
The moves there were most pronounced in the benchmark 10-year tenor, with the yield curve steepening as two-year rates only rose as much as two basis points. European bonds followed Treasuries, with U.K. 10-year yields up five basis points to 0.79%.
Macro traders make money by sniffing out logical inconsistencies and pushing them until they break. George Soros and his ilk pressuring the Pound’s ERM fix is one such notable example so are the small number of traders that correctly called the demise of the subprime markets.
These kinds of contrarian bets are aided by the fact that crowds thrive on contradiction. The biggest bull markets inevitably breed the biggest contradictions because outlandish forecasts are required to justify buying at extraordinary highs.Click HERE to subscribe to Fuller Treacy Money Back to top