Presenting The Bond That Blew Up MF Global

Tyler Durden's picture

Reaching for yield (and prospectively capital appreciation) while shortening duration had become the new 'smart money' trade as we saw HY credit curves steepen earlier in the year (only to become the pain-trade very quickly). The attraction of those incredible yields on short-dated sovereigns was an obvious place for momentum monkeys to chase and it seems that was the undoing of MF Global. The Dec 2012 Italian bonds (of which MF held 91% of its ITA exposure in), as highlighted in today's Bloomberg Chart-of-the-day, appears to be the capital-sucking instrument of doom for the now-stricken MF.

As if we need to remind readers, there is a reason why yields are high - there is no free lunch - and while some have already leaped to the defense of the bet-on-black Corzine risk management process with comments such as 'He was simply early and will be proved correct' should remember that only the central banks have bottomless non-mark-to-market pockets to withstand the vol.

Perhaps the largest lesson, and one that Mr. Barroso, Van-Rompuy, Draghi et al. should bear in mind is just how quickly a levered (firm not instrument) position supporting risky sovereign debt can go against you - but then today's EFSF issue demand perhaps makes that discussion moot.

Chart: Bloomberg

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Mongo's picture

Blame the Bunga!

redpill's picture


If you're gonna go out, you might as well go out big.  And boy did they exceed expectations.


This story coming soon to a French bank near you.


MillionDollarBonus_'s picture

I hope this teaches European politicians a valuable lesson about the dangers of indecisive economic policy. The delayed EFSF expansion may just have caused the BANKRUPTCY of a primary dealer institution. It's time for European officials to get organized and start pushing for decisive and coordinated fiscal policy so that we do not have to witness a tragedy like this in the future. Politicians need to stop worrying about populist referendums and start showing some LEADERSHIP. I and many others with financial equity portfolios are counting on them.

redpill's picture

Good point MDB.  I wish they would stop allowing people to experience pain and just start printing in earnest.  Let's get this party started!

Miss Expectations's picture

Just a guess, but I bet you laugh out loud while you're typing.

Bollixed's picture

True dat. He's gotta be a junk collector and loving every minute of it. Funny stuff.

Alvaro de Esteban's picture

Hey MDB it´s great that an slovakian earning 900 USD/month  has to pay to ensure your financial equity portfolio.

I would be willing to pay the plane ticket to that slovakian to allow him to discuss the issue "face to face" with you.

Hope Obamacare covers your hospital bill

Another Texan's picture

But, i thought Timmy G said the Euro cluster would not come to our shores???  WTF?

max2205's picture

Naked long the Italy 1 year... got to be more to it TD

Hedge Fund of One's picture

Well, apparently, even if they were hedged with CDS, they were effectively naked as illustrated by worthless Greek CDS. 

FinHits's picture

Very useful benchmark to see if there will be "a Lehman event" from this to MF counterparties.

I wonder how many rotten American asset schemes will be blowing up? I guess the MBS investors and funds will be next. Will the US Government bail any of them out? I guess yields will explode in risk assets again.

Buck Johnson's picture

The one CNBC anchor said this afternoon that Corzine's decisions where akin to hailmary passes.  The problem is if you do throw those you have to make them, pure and simple.

honestann's picture

Then I guess this was an interception on the 1 yard line plus a 99 yard runback.  Good going, Corzine.

The Deleuzian's picture

Who's next coming up to bat?  There has to be someone on deck or the game can't continue...

DoChenRollingBearing's picture

Great job there Corzine.

Snidley Whipsnae's picture

Whats up DCRB? I'm still stacking. :)

This one is for Corzine...

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

John Kenneth Galbraith


Schmuck Raker's picture

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

So I got that going for me...which is nice.

DoChenRollingBearing's picture

@ snidley

Doing alright, thanks.  I hope you are too.

Nice quotation from Galbraith, looks very true for Corzine, who has had multiple opportunities to show what a complete POS he is.  The world's worst?

Drop me a gmail at my name if you would like to visit my blog.


Still stackin'

pelican's picture

Smuck.  First he screwed NJ now he is moving into screwing up the remainder of the economy. 

pelican's picture

I am a beginner when it comes to the economy, however doesn't this mean a bunch of CDS come into play, thus dragging other shitty firms down?


Corzine is such a jackass, yet he is still going to make a bundle.


The market has only dropped 200 today.  I am surprised this hasn't caused a massive crash.

Duke of Con Dao's picture

'He was simply early and will be proved correct'

heard the very same words spoken about John Merriwether. 'if only they had more capital to withstand that August battering...'

Cplus's picture


There's a lot more to the LTCM comparison.

If you rememeber, it was Meriwether's investment in BTP Italian bonds financed with Lira repo and hedged with Lira Interest rate swaps that blew them up.

Of course there was also a tax dodge thrown in, in the form of a spurious withholding exemption, all being funded by a carry trade.


plus ça change...

Deadpool's picture

Based on MF Global’s disclosed assets in its bankruptcy filing, it is likely to slot in just ahead of Chrysler as the eighth-largest U.S. bankruptcy.

1) Lehman Brothers Holdings, September 2008: $691 billion in assets

2) Washington Mutual, September 2008: $327.9 billion

3) WorldCom, July 2002: $103.9 billion

4) General Motors, June 2009: $91 billion

5) CIT Group, November 2009: $80.4 billion

6) Enron, 2001: $65.5 billion

7) Conseco, 2002: $61.4 billion

MF Global: $41 billion (as of Sept. 30)

8) Chrysler April, 2009: $39.3 billion

9) Thornburg Mortgage May, 2009: $36.5 billion

10) Pacific Gas & Electric Co., 2001: $36.15 billion

Source:; SEC filings for MF Global asset size

GeneMarchbanks's picture

In a quarter or two they'll be out of the top 10.

DoChenRollingBearing's picture

I wish I could give you 5 greens for that.  LOL...  Uh, I guess...

Forgiven's picture

Exactly...JPM, BofA, GS, WFC...don't forget DB, CS, BNP...when this crisis comes to an end the top ten will be measured in how many TRILLIONS they lost in BK.

Bankers should bring brown slacks back in fashion!

silver500's picture

JPM top creditor again.  Well done JPM!!

dwdollar's picture

Haha... 41B is nothing. The US prints that in a fucking day. The only reason the monkey in chief won't bail them out is because the signing of the paperwork would interfere with tee time.

Zero_Sum's picture

I hope all the OWS folks are moving over to Corzine's place to protest his $12.1M severance package. I wonder how much the MF Global analysts who warned him that this was a bad idea are going to be compensated when they get sent packing.

Piranhanoia's picture

So let's postulate for a mo.  If one of the 22 dealers has failed due to obvious incompetence, ignorance and stupidity....

Is there even a chance the remaining 21 are not insolvent as well?

old naughty's picture

A very good question. Hummmmmmmmmmmm.

earleflorida's picture

levered-up @ 40:1 ,... i'm sure the 'others/them', are levitating or better said, straddling -- 25/50:1    

oops,... there goes another rubber-tree plant

Rynak's picture

There's a reason why they're called the "american zombie banks".

vote_libertarian_party's picture

When you see asset price movement correlation of 0.999999999999999999999999 it does make you wonder.

GeneMarchbanks's picture

Eurozone blow-up of MF Global will be first of many.

lolmao500's picture

Now if only he could go as head of Goldman Sachs or JPMorgue to blow them all to hell it would be nice.

Dr. Engali's picture

I'm sure there is a spot at treasury for him.

css1971's picture



Clearly presidential material! Eh MDB?


mfoste1's picture

im just waiting for the sec investigation.....

pauhana's picture

Right . . . like that will ever happen.

earleflorida's picture

start shooting-up some , hopium

Surly Bear's picture

Be first, be smarter, or cheat (pick two).

halflink123's picture

I think it was less so this 1 individual bond or another 1 individual security and more the fact that they were levered 40 to 1. Just my 2 cents.

NotApplicable's picture

You think the rest of them aren't levered up?

I'd say you're looking at two sides of the same coin. Makes me wonder how many other single issue "trip-wires" lie unseen.

Bwahaha WAGFDSMB's picture

It's the combination of 40:1 leverage and making bad investments that causes things to blow up.  Leverage is great if your investments only go up.  I am captain obvious.