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The Mother Of All Unwinds Accelerates: Treasury Curve Flattening With Unprecedented Speed

Tyler Durden's picture




 

A couple million force-liquidating shares in Amazon or a few billion shorts covered in EURAUS, all those, while painful, are manageable. Yet the biggest positional unwind ongoing currently, which has trillions of dollars behind it, and that few are talking about is the unprecedented flattening of the Treasury curve, as seen in the 2s10s. With every hedge fund, most notably Julian Robertson, and bank (Morgan Stanley), either actively buying or pitching curve steepeners, virtually all market participants are now on the wrong side of the trade, which has collapsed from 290 a month ago to 242bps today, and it appears we will take out the September low of 230 bps shortly. Zero Hedge has long been warning that curve flattening is the biggest squeeze danger out there, courtesy of massive groupthink, which always without fail  (anyone remember Volkswagen) cause massive pain to all those who instead of thinking independently, rush into a trade just because "everyone else is doing it." Well, the trade now is collapsing, and with leverage in the hundreds if not thousands, all those who have steepeners on are forced to liquidate whatever else holdings they have, further pushing the long-dated side of the curve lower, thereby reinforcing the liquidation pressure. Look for the 2s10s to continue collapsing, and for MS to change its tune on the steepener trade shortly.

 

 

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Fri, 05/21/2010 - 09:40 | 365509 Cleanclog
Cleanclog's picture

How will the banks make money if we take away their curve and .25% borrowing?  I guess with fees and fines.

Fri, 05/21/2010 - 12:59 | 365970 e_goldstein
e_goldstein's picture

We don't need banks.  We need mints and storage houses.

Fri, 05/21/2010 - 09:41 | 365511 toros
toros's picture

Press all my numbers please.

Fri, 05/21/2010 - 09:41 | 365512 Bruce Krasting
Bruce Krasting's picture

For big players the equity on a leveraged play on the yield curve (long or short) is less than 5%. Many can do this with no equity at all. So when you lose 2% on a trade it wipes your equity out. People are bleeding all over. But the worst hit were the bond shorts. Stay in cash. There is no visability in the markets at the present time. Everything is a bet.

Fri, 05/21/2010 - 09:44 | 365517 Whizbang
Whizbang's picture

And equities go BOING!

I'm still in cash though. Crazy F*ing markets

Fri, 05/21/2010 - 10:09 | 365576 Al Huxley
Al Huxley's picture

They can't go down every day any more than they can go up every day.  Look back at 2007, when the first crunch hit in August.  That's probably a reasonable template for what's going to happen now.  Longer term its most likely all down, but not without some significant relief rallies, especially this early in the roll-over phase.

But cash is definitely the safest place to be, until the whole storm passes (2, 3 years?)

Fri, 05/21/2010 - 10:23 | 365610 George the baby...
George the baby crusher's picture

I like optimists.  But 2 to 3 years from now, I see the abyss.

Fri, 05/21/2010 - 11:39 | 365779 cougar_w
cougar_w's picture

.

Fri, 05/21/2010 - 11:53 | 365821 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

'cept silver.

Fri, 05/21/2010 - 09:46 | 365524 bobby02
bobby02's picture

Less popular but very juicy: sell 2Y/buy 7Y

Already back to 5/2009.

Fri, 05/21/2010 - 10:16 | 365590 Invisible Hand
Invisible Hand's picture

I wish I had your depth of knowledge (and the nerve to act on it).  I have been buying (or holding in the case of IG) nothing over 2 years, mainly as a low risk, close to cash position (since MM pay nothing).  Staying out of muni's because of default risk.  Using CD's (spread out all over the country) and hoping the FDIC can hang in there.  Guess if they fail, dollars aren't  going to be much use anyway.

Sold all the HY (big position) about 6 months too early but rode them up for about a year.

Riding my shorts up (banks, China, and EM)--and hoping I pick the right exit point.

PM not doing quite as well this week.

In short, waiting for some kind of manipulated, whiplash rebound to kill all my positions.

I used to invest (big Vanguard fan) but now I just try to avoid getting in the cross-hairs of the vampire squid by accident.

I'll never invest in anything again.  The markets are obviously rigged and set up to fleece the small investor.  That's the end of the US economy, as far as I'm concerned.

 

Fri, 05/21/2010 - 09:49 | 365528 chumbawamba
chumbawamba's picture

CRASH.

CRASH.

CRASH.

CRASH.

CRASH.

CRASH.

CRASH.

CRASH.

(For the uninitiated, I am intoning my shockraw.  Yes, a shockraw.  It's where you repeat a word enough times to induce a shockingly raw reaction.)

I am Chumbawamba,

Fri, 05/21/2010 - 10:20 | 365597 Crab Cake
Crab Cake's picture

If I've learned anything Chumba, in the last few years, it's that this trainwreck can crash more slowly than I ever imagined.  We're in for a grind. 

I've lately been trying to stamp out the noise.  I know which way the river is heading, I know that while languishing now the currents will soon hit rapids, and I know there are falls at some point downriver.  What else do I need to know?  I still peruse the details, and keep up, but really.... it's just noise.  I believe the course of events is now inexorably funneling us into the narrows and boulders, and if that doesn't kill us the falls probably will.  It's time to get calm with death and life, meditate, pray, think deeply, eat well, drink, have sex, and spend some time with the family.  Collapse could be today, or it could be five years from now, but it is when not if. 

All that aside, I'm looking forward to checking the news this weekend.  There are alot of violent undercurrents... Korea, Iran, volcanos, Gulf spill, Europe collapsing...etc... I'm sure the powerbrokers behind closed doors are scrambling like mad.  If we watch closely, we will get a peak at some very very nervous people with their sweaty hands on the switches; somebody is going to slip.  There is too much tension,  something is going to give, soon, and the charade will be over.  Send in the clowns.

I Can't Eat Another Bite - Mr Creosote - Monty Python

http://www.youtube.com/watch?v=BlK62rjQWLk

Fri, 05/21/2010 - 10:29 | 365619 George the baby...
George the baby crusher's picture

Crab we can all learn from what you just wrote.  I hope people stop to read it.  

It's time to get calm with death and life, meditate, pray, think deeply, eat well, drink, have sex, and spend some time with the family. 

Fri, 05/21/2010 - 10:40 | 365648 chumbawamba
chumbawamba's picture

Especially the "having sex" component.

I am Chumbawamba.

Fri, 05/21/2010 - 10:56 | 365669 George the baby...
George the baby crusher's picture

I second that.

I am not Chumbawamba.

Fri, 05/21/2010 - 12:20 | 365888 MaxPower
MaxPower's picture

Did someone say clowns? Finally! A post where I've got something to contribute.

MP

Fri, 05/21/2010 - 11:17 | 365720 Ripped Chunk
Ripped Chunk's picture

Kind of like:

TERROR

TERROR

TERROR

TERROR

TERROR

TERRORISTS

TERRORISTS

TERRORISTS

TERRORISTS

TERRORISTS

And that was just 2 hours worth of TV news.

 

Fri, 05/21/2010 - 11:53 | 365823 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Your shakrah is shawkenawe!

Fri, 05/21/2010 - 09:57 | 365544 fuu
fuu's picture

Some serious dip buying going on this morning.

Fri, 05/21/2010 - 10:05 | 365552 No Hedge
No Hedge's picture

say.....squeeeeeeze

Fri, 05/21/2010 - 10:08 | 365571 pauldia
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What may be  around the corner??????

 

First……..from Yahoo…” Geithner will "meet with European officials to discuss the economic situation in the region and the measures being taken to restore global confidence and financial stability and to promote global recovery.” In addition, this will be on the heels of Hillary Clinton meeting with our Sugar Daddy in Beijing, and Black hawk Ben will be in attendance. Next, Tiny Tim, not referring to “Tiptoe in the Tulips”, but, rather the new airport scanner indicator, will meet with Trichet, the British P.M. and Wolfgang “Puck You” Schaeuble in  Berlin. Does this set the table for the upcoming G0 in June? Sooooooo. What’ the Jean Dixon take on this??  The only solution, a new worldwide monetary system, a massive unified devaluation! That is the only real solution folks. Shock and AwShucks, asset prices will go like the balloon boy never did. Will this definitely occur, only the shadow banksters know, but this schmuck with a laptop doesn’t see anything else but devastating deflation, and more importantly election defeats if devaluation does not happen. And you thought ACORN was only election fraudster, these guys will have the whole world registering as Dems. When? Sooner than I thought as events are moving in the HOV lane only.

Fri, 05/21/2010 - 10:08 | 365572 DormRoom
DormRoom's picture

Uhmm.. aren't we missing a fundamental logic:

If hedge funds have been unwinding their USD carry trade, and they know with high probability that central banks are trying to push up the EURO, consequently down the USD, won't hedge fund resume their USD carry trade, since the market has had over a 10% correction?

 

So in fact, wont' we see a large melt up, especially in commodities, and emerging markets?

Fri, 05/21/2010 - 10:16 | 365592 docj
docj's picture

Well played, PPT.  The FedCo "Plunge Supressor 10,000" is working like a charm this morning.  My guess is we're going to get to see how durable it is.

Fri, 05/21/2010 - 10:17 | 365593 carbonmutant
carbonmutant's picture

No inflation for you...

Fri, 05/21/2010 - 10:22 | 365605 Rogerwilco
Rogerwilco's picture

Bubbles, bubbles, China, Canada, Australia, to name a few. There will be massive deleveraging and deflation. I'm not the Pilsbury Dough Boy, but is seems to me that only a big war can alter what is aleady in the cake batter and headed for the oven.

Fri, 05/21/2010 - 10:20 | 365606 Abundance
Abundance's picture

It was good while it lasted.  They are going to gun this higher.

Fri, 05/21/2010 - 10:50 | 365660 ZeroPower
ZeroPower's picture

What a nice way to trap the shorts this morning. Print the low at exactly 9:30 in ES_F then gun it up about 30 handles.

Ridiculous. Got stopped out of course, but i bet many a few got killed when it hit 1079.

But hey, the market's not rigged right:)

Fri, 05/21/2010 - 10:58 | 365673 TooBearish
TooBearish's picture

Tyler - Dont forget the Libor spike and teiring - swap market in total FUBAR

Fri, 05/21/2010 - 11:58 | 365833 jdrose1985
jdrose1985's picture

Tyler - Dont forget the Libor spike and teiring - swap market in total FUBAR

 

I've been looking for more info for what you're addressing

Fri, 05/21/2010 - 11:10 | 365705 Apostate
Apostate's picture

C'mon assholes, send out another bailout.

Push the button.

Push the fuckin' button. 

JUST PUSH THE FUCKING BUTTON! I DARE YOU!

Fri, 05/21/2010 - 11:45 | 365803 cougar_w
cougar_w's picture

Oh you mean this button right here? What happens if I ...

Sorry. Was I not supposed to press that?

Fri, 05/21/2010 - 11:22 | 365737 johngaltfla
johngaltfla's picture

The flatter it goes, the worse the crash later....

Fri, 05/21/2010 - 11:24 | 365747 Double down
Double down's picture

This is a curiosity! 

How does one rescue those who bet against treasuries?  Does the CB sell more UST than needed?  This is something we have seen, no?  That causes the yields to go up creating problems among all those who require low rates.  This situation is very, very tenious.

How does one game the gamer?

Fri, 05/21/2010 - 13:29 | 366047 Tarheel
Tarheel's picture

so we should by TBT?

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