Bond Market Broken?
Has anyone been hearing of RV FI hedge funds blowing up?
Liquidity is terrible, off the run notes are like 30bps wide, cash future basis is trading OIS + 110 or L + 60ish. FRA/OIS blowing out. Signs of plumbing stress are there.
Boost in open market ops probably aren't enough. Talks about increased fiscal spending probably don't help too much either.
Anyone have some insights from their seats? Does not feel good from mine.
You have to assume yes at this point. Morgan Stanley supposedly had a call that everything will blow out. It’s arcade trading now. Basically anything complicated at all getting shut down.
Everyone can’t ask for liquidity at the same time. Some of it because desks getting shut down and going remote so that alone means no one can do size. Hedge funds have to eat so it’s not like they were flat. And spreads doing weird things so blowing out into zero liquidity. Not like they have liquidity now to step in.
Znzb the classic crisis long was -60 ticks cheap intraday with spus limit down. That’s not suppose to happen.
back in 2008 off-the-runs blew out when UBS was forced to liquidate a large off the run roll down portfolio...to raise cash to fill holes from mtge losses in other parts of the bank
during a time of illiquidity, other dealers stepped back and did not want to provide liquidity...which is why spreads blew out. liquidity is again gone..and so any forced selling would cause a similar result..HOWEVER....the FED OWNS 60% Of THE LONG END OF THE TREASURY MARKET. So, the risk of these spreads blowing out again is low. You won;t see offtheruns blow out 100 bps like they did in 2008. In the year following 2008, dealers and hedge funds scooped up these cheap off theruns and made an absolute killing.
All the bond traders who traded thru 2008 remember this...and this is why it won't happen again.
That’s already happened. Not the exact same thing like off the run blow outs. But other things. Tlt. 25 point ub rallies. Stocks down 25% in 2 weeks. The system feels ten times more fragile today than then. On the runs have gone silly.
Bump
OP here.
Feels like the fed announcement did nothing. Only ~$80bn of uptake on the 3m operation.
Spreads in off the runs still wide, swap spreads and basis basically flat on the day. Still thinking things get worse before they get better.
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