-->Bond market collapse

I think this has a lot to do with the GSEs being caught with too many bonds in their portfolio, and having to sell; along with some hedge funds that also got caught in the carry trade.

When you have to hedge trillions of dollars of mortgages against interest rate declines with Treasury bonds, that's a lot of bonds to buy.

After establishing those hedges just 60-90 days ago, now they have to unwind them, and as I posted the other day, it has the potential to become a giant feedback loop, where the more bonds they sell, the higher rates go, so they have to sell more bonds, which sends rates higher, etc, etc, etc, with the potential to cause the equity market to come unglued.

This has a similarity to the stock market crash in '87, where firms were using dynamic hedging with futures for portfolio insurance.

The more stocks went down, the more futures they sold to insure their portfolios, which sent stocks lower, so they sold more futures, which sent stocks lower, so......you get the picture.

That's how we ended up with trading curbs and circuit breakers in the equity markets.

I don't know of any such devices in the bond markets.

Moves like what we've seen don't happen very often, and I think this is the unintended consequence of the Fed's distortion of the bond market.

IMO, this will certainly test the stability of the derivative positions in the interest rate swaps arena.

Also IMO, I suspect that someone is doing a lot of sweating in a trading room somewhere.

It will be interesting to see if the system passes this stress test, and everyone's VAR calculations prove correct.

Wonder where we'll be about 2 weeks from now.

End. Aus einem US-Börsen-Forum herübergeholt.

Und da gibt es doch einige welche für eben diesen Zeitpunkt den grössten Crash voraussagen:

Crawford und andere special gurus.


Emerald.