The ignorance in the "article" is astounding. For instance:
This had the hallmarks of one of the largest bond shops in the world knowing something the rest of the market didn't.
Ah, no it didn't. 10-year Treasuries routinely trade between one and two MILLION contracts per day. The 30-year between 200 and 400K per day.
5,370 10-years and 3,100 30-years is simply no big deal, trades of those sizes and larger routinely happen ALL DAY LONG. There are literally thousands of entities which could have made these trades.
Then there's:
That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.
It means nothing of the kind. The total margin requirement for the two trades would be, AT MOST, $23.5 MILLION, not one billion. So, the guy is off by a factor of about 40.
(5,370 10-years at $2,422 each and 3,100 30-years at $3,386 each. Those are exchange minimum margins for speculators, which is the highest rate that these trades could have been margined at.)
trader confident that it could make 10 billion
This is at least as ridiculous as the "$1 billion" garbage. The entire value of the short position was $1.05 billion. If the value of all US Treasury securities fell to zero (making interest rates infinitely high, an impossibility) the maximum potential profit to the seller would be $1.05 billion. Not $10 billion.
If rates rose to the 20% area, putting the 30-year somewhere in the 60 area (I'm guessing from memory, it's been about 30 years since rates were that high,) the maximum profit would be around $.5 billion. Only off by a factor of 20 or, in the more likely event that they were looking for an interest rate spike of 1%, off by a factor of perhaps 400 or 500. As in a profit of $20-25 million versus $10 billion.
Not to mention that on Thursday, July 21, there was no spike in volume at all in any Treasury futures contract beyond the usual slightly-higher 9AM-hour (when pit trading opens, the electronic version trades virtually 24 hours) volume. The 10-year traded its usual 100-300K per hour and the 30-year traded its usual 25-75K per hour.
And, not to mention that whoever executed this particular set of short sales has spent most of the time since losing money on them, and as I write this is about even on the trade, assuming that it's still open.
And, not to mention that this seller could quite likely have been a cash market dealer who was hedging part of their cash market long position, in which case their margin requirement would approach zero along with their net profit potential and expectations.
Yeah, that was some panic.
This "article" was written by an idiot who is largely ignorant of the futures markets and who was repeating idiocy concocted by someone else who also had no idea what he was talking about.
Worse is the fact that no one has pointed out exactly why this article is a total and absolute joke.
Now, we may or may not temporarily lose our AAA rating.
In any case, the problem can't be solved until the jug-eared, narcissistic, excuse-making, lying, inexperienced, economically illiterate socialist is thrown out onto the Jimmuh Carter trash-heap of totally failed presidents in 15 months or so, along with enough of the liberal idiots in the Senate to render the liberal spenders totally powerless to continue their lunacy beyond the next trillion or two.
BTW you have a great way of explaining it!!! Thanks! I sent your response off to some other folks who picked up on this story and got freaked out!!
Thanks, very clear.
Wondering if the huge rise today in the short term tbills’ yields is related to debt ceiling plays.