By Davide Barbuscia and Gertrude Chavez-Dreyfuss
New York (Reuters) – A violent sale of American cash, evoking the “dash for cash” of the era of the cocovio era, has rekindled fears of fragility on the largest bond market in the world.
The treasure market of $ 29 billion had jumped in recent weeks while investors have poured stocks for the security of state bonds in a risk change in tariff. But on Monday, even though the actions remained under pressure, the treasury vouchers were affected by a wave of sales that sent 17 -point -basic flag -so -day -off yields, while negotiating in a yield range of around 35 base points, one of the wildest negotiation oscillations for yields of 10 years in two decades.
The sale accelerated Tuesday and Wednesday, pushing the reference yields over 10 years over 4.425%, 16 higher base points during the day.
Some market players said they thought that on the basis of dramatic treasury market movements and net tightening of exchange differences that investors, including hedge funds, have sold liquid assets such as US government obligations to meet margin calls due to portfolio losses between asset classes. Some Hedge Funds have unloaded actions because the market market forces them to reduce exchanges using money borrowed.
“The major market movements of all asset classes have triggered relaxation,” said Jan Nevruzi, a strategist for American rates at TD Securities in New York.
Investors and analysts said that this decision recalled the dashboard for the start of the COVVI-19 pandemic in March 2020, when the market seized the fears concerning the coronavirus, which prompted the American central bank to buy 1.6 Billion of dollars of public bonds.
Similar to this episode, at stake on Monday, there was also a reduction in the so-called basic exchange, an arbitration negotiation strategy of popular coverage funds between long-term cash items and cash workstations, the course of which has probably exacerbated the Krach of 2020, investors and analysts said.
“When you have big movements like that and rely on an arbitration relationship, the tightening of differences for any reason, you may have to reduce your positions,” said Nevruzi.
The base trade has been closely monitored by regulators in recent years, as it could be a source of instability for the markets if the lever -effect coverage positions are quickly unrolled. This scenario could reduce the capacity of banks to provide liquidity, or intermediation, on the treasury market, the world finance construction block.
Torsten Slok, chief economist at Apollo Global Management, said in a note on Tuesday that basic trade is currently worth around $ 800 billion.
The hedge funds generally borrow from the repository market to buy treasury bills and use them as a guarantee. The drop in prices for treasury bills due to the sale has allowed a lower guarantee value for the loan, which invites margin calls, analysts and investors.
“There has certainly been a little denigration of basic professions in recent days, some margin calls to banks,” said David Rolley, portfolio director and co-responsible for the world’s fixed income team of Loomis Sayles.
Admittedly, other triggers could be at stake. An explanation is that the bond market comes back to the idea that the prices of the American president Donald Trump on the major American trade partners are inflationary, which would limit the capacity of the federal reserve to reduce interest rates despite the slowdown in growth.
“Can you really say obligations when we could have a handful of 4% on inflation in two months?” said Spencer Hakimian, CEO of Tolou Capital Management.
“Destruction request”
Many on the markets remain concerned about the vulnerabilities that have emerged in previous incidents, as in March 2020, could still reappear in the case of volatility peaks.
“We have struck the tables for years that the depth of liquidity on the treasury market is poor and has been for years,” Andrew Brenner, head of international fixed income securities on the capital markets of the National Alliance, said on Tuesday. “These basic transactions, which can be operated up to 100x, have submerged the bond markets,” he said in reference to the sale of net Monday bonds.
In addition to the sharp increase in yields, several analysts have also highlighted the changes in the price differential between treasury bills and interest rate exchanges as proof of a specific sale of treasury bills, as opposed to a broader decision reflecting, for example, changes in the expectations of monetary policy.
An executive executive for clients of hedge funds in a large bank, speaking on condition of anonymity, said that investors were looking for alternatives to American assets in the midst of market volatility, including alternatives to American treasury bills.
The exchange deviations, which reflect the difference between the fixed rate on an interest rate exchange and the yield on a comparable treasure and are often used to hide or bet on the rate changes, tightened considerably, in particular for dated deadlines.
The underperformance of treasury bills compared to the exchanges reported a “actual real foreign sale,” said Jonathan Cohn, head of the American tariff strategy at Nomura Securities International.
A trade of consensus between hedge funds was to be positioned for expanding the exchange differences, he said, due to the expectations of a new deregulation of banks. These positions probably had to be unrolled, contributing to the sale of the treasure, added Cohn.
The propagation of the exchange at 10 years has dropped suddenly or tightened since April 3, after the announcement by Trump of scanning prices on imports. They were seen for the last time within 63 base points – their most negative since at least at the end of 2022.
Citi analysts declared Tuesday in a note that the sale resulted on Monday with a “light dash for the course, showing signs of possible destruction of the demand for us treasury bills”.
Although the factors that drive the swap spread below are generally a sign of concerns about the budgetary trajectory, they said that the prices also added pressure.
“Presumably, less trade will limit the growth of USD world reserves which tend to find their way in American treasury bills,” they said.
(Report by Davide Barbuscia, Gertrude Chavez-Dreyfuss and Carolina Mandl; edition by Megan Davies and Chris Reese)
