Written by David Barbosia and Gertrude Chavez-Wirifus
NEW YORK (Reuters) – The US Treasury has re -violently, which has sparked “cash drive” dating back to the Kofid era, fears of fragility in the largest bond market in the world.
The treasury market of 29 trillion dollars has increased in recent weeks, as investors have threw stocks for the safety of government bonds in a shift that may nourish the risks. But on Monday, even as the shares remain under pressure, the cabinet was injured with a wave of sale that sent reference returns to a height of 17 basis points per day, while trading in the range of 35 basis points, one of the fiercest commercial fluctuations for 10 years in two decades.
The sale increased on Tuesday to Wednesday, which paid revenue for 10 years at an altitude of 10 years above 4.425 %, and 16 higher basis points per day.
Some market participants said they believe based on the movements of the dramatic treasury market and tightening it sharply for the exchange resources that investors, including hedge funds, sell liquid assets such as US government bonds to meet marginal calls due to the losses of portfolio via classes. Some hedge boxes have been discharged from stocks as the market drowns in reducing trading using borrowed funds.
“The big moves in the classes of assets raised relaxation,” said Jean Nefrozi, a strategy expert at TD Securities in New York.
Investors and analysts said this step reminded us of the rush in exchange for publication at the beginning of the Covid-19 in March 2020, when the market seized it as concerns about the Corona virus, prompting the US Central Bank to purchase $ 1.6 trillion of government bonds.
Similar to that episode, on Monday playing was also a reduction in the so -called basic trade, a famous hedge arbitration strategy between cash positions and future treasury centers that are likely to exacerbate in 2020, investors and analysts said.
“When you have such great movements and you depend on some referee relations, it is spreading tightening for any reason, you may have to trim your positions,” Neprozi said.
Trade has been closely monitored by the organizers over the past few years because it may be the source of market instability if the hedge funds sites with severe benefit are not emerging. This scenario can reduce banks’ ability to provide liquidity, or mediation, in the treasury market, global financing brick.
Torrestin Slok, Apollo Global Management, estimated at a memorandum on Tuesday, the basic trade value currently is about 800 billion dollars.
Hedge funds usually borrow from the ribau market to buy the cabinet and use the latter as a guarantee. Analysts and investors said that the decrease in treasury prices due to sales provides less guaranteed value for borrowing, which prompted margins, analysts and investors.
“There has been some jaw in many deals over the past few days, and some of the margin calls to banks,” said David Rolli, wallet manager and co -manager of the global fixed income team in Lomis Sils.
Certainly, other players can be playing. One of the explanations is that the bond market wanders in the opinion that US President Donald Trump’s tariff for trading partners in the United States is inflationary, which will reduce the Federal Reserve’s ability to reduce interest rates despite slowing growth.
“Can you really provide bonds when we have 4 % handling of inflation again after two months from now?” Spencer Hakamian, CEO of Tolou Capital Management, said.
“Destruction of demand”
Many in the market are still concerned about the security gaps that appeared in the previous incidents, as in March 2020, they can still appear in the state of nails in volatility.
“We have been hit for years that the depth of liquidity in the treasury market was weak and it was years ago,” Andrew Brenner, the National Alliance Capital Markets. “These basic trading, which can be used up to 100x, the bond markets were immersed,” he said, referring to Shart Bond Selloff on Monday.
In addition to the sharp increase in revenue, many analysts also pointed to the changes in the difference in the price between the treasury and the bodies of interest rates as evidence of the sale of the specified cabinet, unlike the broader step that reflects, for example, changes in monetary policy expectations.
Investors said that providing executive food for hedge funds in a large bank, speaking on the condition that his identity is not disclosed, is looking for alternatives to American assets amid market fluctuations, including US Treasury alternatives.
The spread of swap, which reflects the gap between the fixed rate to switch the interest rate and return on the similar cabinet and is often used to hedge or bet on the transformations in rates, significantly, especially for long entitlement.
Jonathan Cohen, head of the United States’ interest rate office strategy at Nomura Securities International.
He said that the consensus trade was to be placed between the hedge funds to expand the exchanges of exchange, due to the expectations of the banking cancellation. Cohen added that these positions are likely to be not binding, which contributes to the sale of the cabinet.
The spread of 10 -year swap has decreased sharply or tightened since April 3, after Trump announced the profile definitions of imports. The last time was seen in the Minus 63 basis points – the most negative since late 2022.
Citi analysts said on Tuesday, Selloff was crowned on Monday with “Light Dash-For-Lash, which indicates signs of the destruction of the potential demand for US Treasury bonds.”
While the factors that lead their exchange are generally less are a sign of concerns about the financial path, they said that the customs tariff also add pressure.
They said: “It is assumed that trade is less than the growth of the global global dollar reserves, which tends to find its way to US Treasury bonds.”
(Participated in the reports of David Barbusia, Gertrude Chavez-Widrifus and Carolina Mandel; edited by Megan Davis and Chris Reese)
