Fasten Your Seatbelts: High Frequency Trading Is Coming To The Treasury Market

Tyler Durden's picture

In what may be the gray swan that all hell is about to break loose, we read that one of the world's largest hedge funds, British Man Group with $58 billion in AUM, is about to launch High Frequency Trading - the same high volume churning, sub-pennying, liquidity extracting, stub quoting and quote stuffing parasitic algorithms that frequently crash the equity, and as of recently the FX and commodity markets, into that most sacred of markets: US Treasurys. The official spin: "The Man Systematic Fixed Income fund, yet to be launched, will try to identify and profit from dislocations in liquid government bond markets." What this really means is that the final frontier of market rationality is about to be invaded by artificial momentum generating algorithms, who couldn't care less about fundamentals, and whose propensity to crash and burn at the worst of times, may end up costing the Fed all those tens of trillions it has spent to keep the Treasury market calm, cool, collected, and largely devoid of any volatility and MOVEment. But all that is about to change: "The unit is run by Sandy Rattray, who co-developed the VIX. VIX volatility index, also known as the "fear index", widely used to measure investors' perception of risk." As a reminder, the VIX index is only relevant when there are surges in volatility, something which we are confident Mr. Rattray will no doubt bring to Treasury trading momentarily. 

From Reuters:

"Traditional fixed income investing (is) unattractive," Man's Systematic Strategies unit said in a note, citing "yields close to zero percent, increased credit risk in many government bonds, (and) little upside (and) big downside of being long bonds in (the) current environment.


"Market inefficiencies (are) likely to prevail in fixed income markets, creating investment opportunities."


A spokeswoman said on Thursday MSS was working on the fund and declined to give a launch date.


The fund will be the fourth portfolio run by Man's one-year old MSS unit, which manages $1.6 billion (996.5 million pounds) assets. 


Last month Man announced the launch of the Man
Commodities fund, also run by MSS, which uses algorithms to trade 25
commodity futures contracts and also allows human intervention.

And here we were thinking that the only reason HFT has any incentive to participate in a market is to extract liquidity rebates, which of course do not exist in the TSY market. Stepping away from the endless lies of the HFT lobby, the truth is that the permabullish bias imputed by algos in Treasury trading will simply mean that slowly but surely the same low volume meltup in stocks that we have all grown to love, especially between 3:00 pm and 3:30 pm will now appears in the 10 year. Luckily, with a minimum rate threshold on bonds at the 0% bound, it means algos can only melt bonds up so much. Unless of course, some 19 year old computer sciences Ph.D. programmer forgot to tell the vacuum tubes, about to be buying and selling the long bond from you 10,000 times per second, this particular fact.

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navy62802's picture

Is BATS going to be involved in this? Haha, imagine the possibilities.

phungus_mungus's picture

I will be so glad when the whole thing derails and takes everything and everyone with it... or a giant astroid smacks the shit out of this rock, hitting the galactic reset-button. 

Perhaps next go around whatever species evolves will get it right. 

Not Too Important's picture

Anything surviving 40 years will glow in the dark.

LowProfile's picture

This will continue as long as the Arabs and Chinese can buy physical gold.

Once that dries up, SAYONARA, SUCKAH!!!

CClarity's picture

I long for the days of the arbitrage trader - an actual human trader looking for these little moments.  But now with the algo nanosecond robots . . . 

The next bastion will be straight barter.  Move to where stuff you like is and figure out what you're going to produce or service in exchange.  

navy62802's picture

The next bastion will be straight barter.


It's already started in Greece. And guess what? The world didn't end like the big banks said it would.

Clowns on Acid's picture

Large problem with a cashless barter

Max Fischer's picture




I will be so glad when the whole thing derails and takes everything and everyone with it... or a giant astroid smacks the shit out of this rock, hitting the galactic reset-button......


Why are you so angry at the world that you'd wish for such devastation?  I can understand your frustration with politics or modern society, but wishing for the Earth to crack in half is bizarre.  Let me guess.... libertarian?

Max Fischer, Civis Mundi 


navy62802's picture

I don't personally wish for the end of the human race, only the current financial pyramid scheme. I hope for an orderly solution to our problems, but I think we're beyond the event horizon ... meaning that like escaping from a black hole, an orderly solution is now impossible. The only resolution I can discern is a devastating collapse of the system, a system-wide reset. Such an event is the only hope we have of breaking the stranglehold that multinational banks have on sovereign nations right now. Of course, there's the possibility that satan again rises from the ashes, but at least there would be the chance for a more sound system to emerge. As it stands now, there's no hope for that to occur.

Vic Vinegar's picture

I'm gonna green you b/c that's a comment rooted in intelligence and principle.

However -

The world does not work this way and it never will.  "Sovereign nations" are not looking to break the stranglehold of multinational banks; rather, people wanna have fun and watch Dancing With The Stars.  There's nothing wrong with that by the way.

Keep in mind that there has never been a time in human history in which things have been pristine and in which justice for all prevailed.  That maxim ain't about to change on your watch or mine, no matter how bad one wants it to happen.  

I say buy physical.  It's the best play you, me or anyone could make from here on out.  And enjoy life - things are getting better.  They really are.

LowProfile's picture


people wanna have fun and watch Dancing With The Stars.  There's nothing wrong with that by the way.

The parallels to Rome abound.

...Guess what happened when the bread and circuses dried up?

GlenD's picture

Things are getting better.  They really are.

....Tell that to bee's, dieing from GM crop pollen genetically modified to kill em off.

Vic Vinegar's picture

You get a green, too, Max.  I like what you are doing and you make good points.  We'd all be better off if there were more discussions than pointless, angry rants here.

Bay of Pigs's picture

What good points?

All Max does here is incite all the angry rants you speak of.

Vic Vinegar's picture

Take a look at the comment Max ridiculed, which currently stands at 6 greens to zero.  Max did a fine job replying.

Sure some people need to come here and give us their asteriod fantasies, but it doesn't do anyone any good.  

You are a PM's guy, Bay - don't worry too much about the "price" of silver.  You are doing the right thing.  Have fun in the meantime, rather than waiting for the "collapse".  No matter what happens, you have something valuable to give to your family.

Bay of Pigs's picture

That's navy's comment to Max. Max did his usual "libertarian' bash just above it. Typical horseshit from him.

Vic, I don't worry about any of that stuff. I just spent two glorious months in Maui. Had a blast everyday.

Live well brother...

Buck Johnson's picture

There's always a reason, and your right this is going to derail and big.

Clowns on Acid's picture

Negative cobwebbed thinking....rational people will stay alive and a new paradigm will arrive.

Stoploss's picture

Well, well, well.. Here it finally is.

Our Huckleberry..

Sutton's picture

Ben's gonna have to redeploy his divisions. The dreaded Two Front War.  

vast-dom's picture

guess we need to go long 10y -- fuck me i am shorting the 10y! BUT since at 0% bound we may find the short position actually pays out, over medium term....who the fuck knows anything anymore....

CrashisOptimistic's picture

I think a 10 year yield of -0.5% within 18 months is credible.

With or without HFT.  There is no growth.  Period.

YesWeKahn's picture

Here comes the bernankOBOT.

Cdad's picture isn't bad enough that these HFT hedge fund pricks are causing folks pain at the gas, hit them with their credit card interest rates.

WTF is going on?  This hedge fund should be attacked relentlessly until it is simply gone from the planet.

Just sayin'...

Caviar Emptor's picture

I beleive that HFT bots and algos are already getting embedded into everyday transactions. 

Try booking an airline ticket: as soon as you click the ask price goes up. 

Coming soon to false advertising firms and bait-and-switch operations near you!

cossack55's picture

That choice was made in 1913. 

tu-ne-cede-malis's picture

Flash crash the government bonds? Woooo

CPL's picture

Imagine all the bonds, insurance policies, swaps...blowing up like string of fire crackers...



Go go go go go go go go HFT!!!

TwoJacks's picture

...and mortgage resets.

imagine trying to lock in an interest rate with the bots playing around like they do.  mortgage lenders will scream

Not Too Important's picture

Cool. A 6V6 for my tweed amp. Now this site is starting to grow wings.

This is a guitar site, isn't it?

Manthong's picture

I hear JP Morgan has a huge short position on these.

Mitzibitzi's picture

I just did a repair job on a Tweed Deluxe, actually. Sounded suh-weet with the old RCA 6V6s it had in the power amp.

Funnily enough, the owner is an ex stockbroker. Reckons he got out of it because it had become a case of making money just for the sake of making money. Runs a small recording studio way out in the sticks these days and, if I remember right, raises a small herd of rare breed beef. Not a nice guy other ways, though. Always a bit superior and abrupt with 'peasants' like me. Always queries the bill, too, which I find offensive because I'm one of the cheapest decent amp techs for probably 100 miles.

fonzannoon's picture

What does it really matter, interest rates are not allowed to go up. It's that simple.

q99x2's picture

Maybe they are owned by the same owners of the FED.

vote_libertarian_party's picture

Maybe if they crash the Treasury market somebody will finally un-plug all of the HFT bots.

Paul Atreides's picture

01000110 01110101 01100011 01101011 00100000 01111001 01101111 01110101 00100000 01000010 01100101 01110010 01101110 01100001 01101110 01101011 01100101 00100001

resurger's picture

Churn, Stuff, and Burn...


Dr. Engali's picture

Maybe they can churn treasuries up to a negative yield and the debt will start paying itself off.

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

Microsecond Mean Re-versions.

Pete15's picture

Well the only thing we can know for sure after this news is that Ben is getting really fucked up tonight. To thirsty Thursdays!!

asteroids's picture

Should these bozo's get a foothold expect enourmous volatility in the equity markets. Cool.

solgundy's picture

ya long will it take for Barry to declare Mr. Rattray a domestic terrorist, then take action under his Exec Order...??????????

Not Too Important's picture

Does this have anything to do with Japan admitting there are an additional 14 reactors in various states of destruction?

Thousands of tons of radioactive material in various stages of exposure to atmosphere. And that's only what they admit.

Bond pricing will soon reflect the levels of radioactivity in their respective countries. Let's see if QE can solve this!