Hedging The Great Unwind - Second Highest Treasury Put Volume On Record Hits The Tape

Tyler Durden's picture

In early June 2007, Treasury futures saw their largest-ever put volume traded (821,978 contracts) and within a few days, Treasury yields had peaked at 5.32% and never looked back. Yesterday, according to CME data, Treasury futures put volume hit 758,020 contracts (second only to that 2007 high) as 74% of the entire options trading volume was in puts (and 88% of 5Y futures options were puts!). With the FOMC tomorrow and everyone seemingly convinced that the 'great rotation' is in place, it would appear the crowded trade is being bearish bonds.



Is the world expecting a 'hint' at relative tightening from Bernanke tomorrow? and what will that do to equity prices?


(h/t Brad Wishak of NewEdge)

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whatsinaname's picture

The Dow has to hit 14000 before any real action (or reaction) occurs.

camaro68ss's picture

i feel like the pig on the geico Commercial, Weeeeeeeeeee, we, we, we, weeeeeeeee 

darteaus's picture

After touching you all last night, I'd have to agree.

bonzo112358's picture

You're probably right.  I didn't realize how close we were too the 14k mark.  Buying more vxx call spreads.  I still haven't learned my lesson on going against the fed.  If you want to make money just do the opposite of what I'm doing.

SeverinSlade's picture

Fighting the Fed isn't a losing battle.  But it certainly is a lengthy war; and lengthy wars can be expensive. 

But that's the whole point of current Fed policies though.  Doing the right thing doesn't generate the returns they should.  The Fed has, in effect, made the correct moves far too expensive.

This strategy will work until it doesn't.  You can be like the CNBS lemmings and just keep BTMFD each and every time.  But one day you will be the one left holding the grenade as it explodes.

Karlus's picture

I agree. The easiest way to "fight the Fed" is with PM positions. That said, it does look like a top, but we will bust it because if you print Dow has to rise.

darteaus's picture

Exactly right - get out of their fake money as much as possible.

Fish Gone Bad's picture

You are right and wrong.  It absolutely should be a top, but with all this liquidity sloshing around it has to go somewhere.  Things just aren't fucked up enough yet for the market to tank.

EmmittFitzhume's picture

Don't fight the Fed. Just stand back and watch it destroy itself.

thismarketisrigged's picture

2 PM?  Prob sooner with these crooks, lol. i actually called 14,000 yesterday in a post in another thread, sure enough looks like ill be right,


bunch of crooks these bankers are

SeverinSlade's picture

All of these signals that generally coincide with a market top...I don't know about everyone else, but it sure feels similar to late 2007...

Temporalist's picture

It's felt like 2007 for 5 years.

fonzannoon's picture

the day rates ever actually ratchet up is the day you better head to your lakehouse after you wipe out the grocery store. until then the game goes on.

cxl9's picture

Precisely so. If interest rates ever normalize, the whole system comes apart. They're not going anywhere.

Groundhog Day's picture

in a currency war the absolute last thing you do is raise interest rates as that sends the currency higher.  Ask yourself if this is even remotely possible...you know the answer.  the next time rate actually go up it will be because the central banks have lost control, until then be long bonds and hedge with gold and silver

Ham-bone's picture

Currently $8+T in 3yr and less Treasury debt...yielding .4% to .04%...any move back toward '07's 5% yields on this debt (of which Fed owns none after its Op Twist) and POW, to the MOON

VonManstein's picture

bonds will tank tomorrow.

LawsofPhysics's picture

Bullshit.  The Fed has a floor under everything.  There is no "market" for true price discovery anymore.  Unless you really believe those yields reflect a true cost for capital.

Personally I think it would be great and would certainly make the budget/debt ceiling debate more interesting.  Tell us, how much interest are taxpayers giving to the Fed right now?  What would that number be if rates went above 3%?

Think about it, rates will never go up.

Water Is Wet's picture

+1.  Anyone who reads in "hints" of tightening in tomorrow's language needs a lobotomy.

LawsofPhysics's picture

Dealers simply have no incentive to help their customers come clean, of course they don't want to kill them either, at least not until the addict's children are also hooked on debt as well.

What's up with student loans again?

Temporalist's picture

And for those that wonder how the Fed can manage this let's not forget that the zombie bailed out banks have an obligation to grovel to their master printer for free money and abide his wishes. 


Ben's zombie army will buy bonds as if they were brains for eating.  "Moarrrr....bonds!"

Nothing To See Here's picture

There will be hints of tightening, that is 100% certain. It's going to be only MOPE though. Fed must hint at tightening to cap gold price. Then don't tighten, but hint again. Rinse. Repeat.

garypaul's picture

That's exactly what the Bank of Canada has been doing re:mortage rates!

SeverinSlade's picture

I'd also add that when pretty much 100% of investors finally begin thinking that way: that the Fed will rescue any and all markets...Is right around the time the Fed will have officially lost all control.

The fact that more and more people are giving up and just going long is definitely concerning IMHO.

Urban Roman's picture

... except Au and Ag. There's no floor under them, and they're not backed by anything. 

Somebodyorother said that in CNBS the other day. 

still waiting for that crash to 0

Nothing To See Here's picture

I saw that awesome segment too. Talking head blaming gold for not being backed by anything (like by US dollars?). At some point, they're going to argue that cars should push the engines.

nope-1004's picture

It was this idiot that said "gold isn't backed by anything".  LOL.


 Original clip starts at 13:50


Frank N. Beans's picture

gold is not backed by anything except human history

LawsofPhysics's picture

"backing" is irrelevant, it is all about counterparty risk.  Gold has been a safe store of value for 6000+ years. Why?  Because an ounce is an ounce is an ounce.  the metal remains rather inert to this day and unlike a paper promise it won't fuck you over, hence, no counterparty risk.  Seem like the world needs another lesson in risk and value.

VonManstein's picture

With a name like "lawsofphysics" you seem to have little respect for Sir Newton.  Or the basic concept of what goes up....

Are you really suggesting Ben Bond is invincible? At some point soon rates will rise.

What could Ben possibly say or do to jam rates lower and bonds higher? He has pretty much done all he can... He will of course continue this and perhaps increase it but when last QE forever was upped to $85 Bill TSY sold off 2% almost.

What do you think will happen?


fonzannoon's picture

a mini correction should do it. a nice european crisis sparked up. there are plenty of tricks in the playbook.

VonManstein's picture

I agree with your angle Fonz.

I was just stating that the FED cant do much more other than "stabilise" TSY. The laws of physics will prevail and the US gov will go bankrupt. Ben is powerless to this.

I say any anouncement will spark a sell off. Only breifly however as things will remain "orderly" for now. DX also going down.

fonzannoon's picture

I hear you man. smoke and mirros. 

Karlus's picture

They just print. There is no limit to the number of zeros. Even if there is, we are not near it yet. I dont see wheelbarrows yet...

Stoploss's picture

What happens to banks if Ben raises rates tomorrow?

LawsofPhysics's picture

The laws of physics have little to do with paper promises, paper valuations, and manipulated markets.

I didn't junk you and will only ask if you really believe all the "book values" for the underlying collateral behind all those bank "assets"?

I certainly don't, nor do I believe that the true cost for capital is 1.98 % (using the ten year as a reference).

Ah, if only I could use the same accounting rules that the big banks do, or control the market (i.e. housing) by intentionally removing inventory to push prices higher.

Nothing changes until the supply lines break.  As for when that happens, just track the prices you actually pay and start believing your own lying eyes.

VonManstein's picture

Calm down Sir.

I am just stating that Ben is only the King of paper untill he isnt. and that that time is nearing.

We are on the same side comrade

LawsofPhysics's picture

ZH just put up the 5-year results.  The Fed/PDs are the only buyers, period.

VonManstein's picture

So. So what?

Its ridiculous to say they will tighten and its equally as ridiculous to suggest rates will never go up.

I say they lose control soon and would rather short these fuckers on a bounce.

Lows/highs are in

LawsofPhysics's picture

So make that bet.  Personally, I won't and I am betting we stay range bound until you see some real protectionist policies and war.  Again, history is very clear on this.

Either way, it's still a paper promise to pay, good luck collecting on that should they lose control.  

VonManstein's picture

You know the bold text doesn’t make your comments more effective.

LawsofPhysics's picture

Yes, but it can provide the appropriate emphasis for the less asute reader.

VonManstein's picture

i think you mean "astute"

have a great day

LawsofPhysics's picture

Yes, glad to see you are paying attention.

Dr. Engali's picture

Ben is not invincible and neither is the dollar, but I'll bet we see a sub one percent ten year before this is all over.

VonManstein's picture

You may be right but im not betting on it.

Everyone here is Bullish TSY it seems and i think the lows/highs are in.

Now the rest of the "market" will flake around untill this is understood. Then... well... heads up

fonzannoon's picture

Good luck Von. I am rooting for you. I meant that.

Temporalist's picture

You misinterpret people's cynicism for bullishness.

SeverinSlade's picture

Rates will never go up?  I think the more accurate statement is: The Fed will never willfully allow interest rates to go up.  As with the death of all fiat currencies, eventually Mr. Market wins and the Keynesians lose.

Risk can only be artificially mispriced and ignored for so long.