Traders Now Record Short Bonds After Biggest VIX Futures Liquidation Ever

After a chaotic week of volatility-related volatility, some of the unbelievable fallout from the "end of the short-vol trade" is being exposed.

The week was full of superlatives...(and some quotes from veteran traders)

Intraday swings in The Dow far exceeded 12,000 points - "it was untradable"

Volatility of volatility exploded to its highest ever - "we've never seen anything like it"

And while XIV's collapse triggered the termination event, the biggest blowback was a stunning reversal in speculative VIX futures positioning which swung devastatingly from net short to record net long in one week... "it's unprecedented"

As an incredible 145,000 VIX futures contracts were force-bought... "WTF!"

And that forced demand for index volatility sent implied correlation spiking by its most on record... "this is far from over!"

As a reminder, implied correlation measures the relative demand for macro overlays (index hedges) vs micro risk (individual stock hedges/concerns). The higher it is, the more systemically worried investors are and the more traders believe a high correlation 'event' is due (typically the high correlation event is a big downturn in stocks).

As momentum suffered its worst swing in the history of the US equity market...


Meanwhile, as all of this chaos took place in equity markets, bonds went nowhere (despite all the headlines proclaiming their demise)...everything but the 30Y rallied on the week!


Which is fascinating as speculators just sent aggregate Treasury positioning to its most short ever (and rate-hike bets back over $3 trillion notional)...

And as we noted previously, where the trader short bias is especially pronounced, is at both the short-end, i.e. the 2Y treasury, where net specs just hit a new record net short, as well as the other end, or the Ultra-Long futures, where net specs also just hit an all time low (i.e. short) position.

So after all of that, as one trader warned unprompted, "do you really think this equity 'hiccup' is over?"

And if history is any guide, Powell faces more pain first...


JRobby SickDollar Sat, 02/10/2018 - 12:41 Permalink

No trust among thieves. And some got "caught out" in 2008 when it froze up.

Banks started cutting small business and consumer lines of credit about 2 years ago anticipating a Hildabeast win where she would just continue the Oblivio (Manchurian Kenyan) hit job on the economy and recession would have been set in by now with QE in the rear view (distant) mirror.

Instead, it will be later this year...................starting NOW

In reply to by SickDollar

ChacoFunFact SickDollar Sat, 02/10/2018 - 13:56 Permalink

Re "interbank loans":

No its the opposite, interbank loans peaked in 2008, take a look at the chart on the link you provided, they loan more to each other during crises. 

If anything, this chart tells me the economy is a lot stronger than the 2008 economy.  Which of course is not reported by the MSM due to their incredible bias against the sitting president. Score one for inflation argument. 

I half suspect some cabal figured out exactly how to prick the infrastructure surrounding the VIX complex where the inflation byline we're all reading aboutis just good sound bite fodder. A little little bit of inflation is better for companies selling to richer consumers.  Score one for the cabal.

But the worse conclusion is there was no one, no group, behind the spark of this sell off, that in reality we're all asleep and just that much more vulnerable.  The VIX is based on two derivatives which themselves are based on an index over at the cboe which can't itself be traded. Score one for sleep walking while calling ourselves awake.

If the short VIX unwind continues to wag the dog i expect congressional apparatus to step in along with some soothing words from the new fed govvie.  Meaning that both VIX complex and the inflation scare are addressed (VIX goes bye bye and fed takes up Mnuchin's mandate for tepid dollar). Also check out the cboe stock chart, ticker CBOE.

In reply to by SickDollar

Lost in translation SickDollar Sat, 02/10/2018 - 14:08 Permalink

Can one of you fine Gentlemen please share some site or sites for useful reference & instruction to an inexperienced noob (like... ME) how the bond markets *really* work?

Unfortunately my understanding of government and corporate bonds is informed by an educational system fully ensconced in bankster-approved/Keynesian/pre-selected information.

Meaning, in practical terms...

...I am clueless.

In reply to by SickDollar

Harry Lightning cossack55 Sat, 02/10/2018 - 13:43 Permalink

I believe that Meyer was the imbecile who led the Board when they tightened during the Depression, making the banks collapse.

I am thinking of buying bonds - 10 years and longer - when the 10 Year maturity reaches 3%. The combination of a stock market that probably is going to 15,000 or lower, combined with the record short position in bond futures, tell me that a muthafucka of a rally is coming in Treasuries as money flees stock and ruins to bonds. I think its worth taking a 1-2% risk in order to make a lot more than that - maybe as such as 20% - if I am correct and bond prices wind up back at their all-time highs from 2016 if the carnage occurs as I expect it to occur in the stock market. 

I still think you have to look at what happened in Japan at the beginning of 1990 - over-valued stock market was cut in half within a year and their government bonds rallied to all time low yields - if you want to see what could happen here. These massive excesses correct very fast as everyone tries to get out of the burning building at once.

In reply to by cossack55

MaxThrust Harry Lightning Sat, 02/10/2018 - 18:40 Permalink

"I am thinking of buying bonds - 10 years and longer"

And what are bonds? In reality just digits on a statement. Better to buy something tangible that will be worth something when financial instrument are worth nothing.

Land you can farm, Diesel you store and use when you need it. PM which can be traded for other goods. Ammunition for trade or defense. Essential pharmaceuticals. Food which can been stored long term.

In reply to by Harry Lightning

buzzsaw99 Sat, 02/10/2018 - 12:16 Permalink

somebody is about to get their ballz squeezed real hard.

Los locos kick your ass. Los locos kick your face. Los locos kick your balls INTO OUTER SPACE!

stocktivity Sat, 02/10/2018 - 12:16 Permalink

I see many comments on how a whole generation of advisors and analysts have never seen a downturn and will screw thing up when a real bear market hits. I'm a boomer. Our generation as a whole fucked our kids and grandkids future with all our borrowing and spending on shit we went in debt for. I raised 3 kids that are on their own now. All have good jobs and except for mortgage payments are debt free. No credit card debt and they buy stuff they can afford. We lived that way and that's what they learned growing up. If my fellow boomers would have done the same, we wouldn't be in this mess today. Boomer generation needed their toys on credit. Government boomers needed to pay for their perks by borrowing Billions of dollars each year and putting the younger generations with a total debt closing in on $20 Trillion dollars. Give me down arrows all you want but don't knock the younger kids. It's their time. Sure they'll make mistakes. If you're a boomer, you did too. They will learn better than our generation from their mistakes. I retired after 37 years delivering mail. Retired with no debt and solid investments. I have worked helping kids in school as an aide for the past 3 years and I see a bright future. Sure there are some punks, bullies, and jerks but there was in our day also. If you are a boomer, rather than being a negative asshole about the younger generations, take some time to actually talk to just one of them. Don't preach but ask questions and try to help out just one. You'll leave the planet in a speck better place than just ridiculing the younger ones.

Pool Shark stocktivity Sat, 02/10/2018 - 12:23 Permalink


It didn't begin with the Boomers.

It goes back at least as far as the creation of the Fed and the Income Tax in 1913.

FDR himself more than TRIPLED the National Debt in the 30's, and created all the entitlements that will eventually bankrupt the nation.

When the time comes, the Millennials will screw their children, just like every prior generation did.

"We didn't start start the fire..."

In reply to by stocktivity

Pandelis Pool Shark Sat, 02/10/2018 - 12:57 Permalink

exactly ... it was planned all along pal ... that's right from that humble beginning of 1913 (andrew jackson and a few folks knew it all, but they just wait for them to die off and start again). The original mandate was 100 years for the Fedies ... you got a few extra years as a tip for good work ... enjoy it while it last ...

yeah well, you can go back to blaming right and left, black and whites, latinos, immigrants, depp state and so on .. or " the boomers"

In reply to by Pool Shark

Dewey Cheatum … Sat, 02/10/2018 - 12:18 Permalink

Every bit of this is purely manufactured Vol. the fastest way to scoop up more ill-gotten gains is to create the crisis.

The only thing Yellen had to do last week as a parting shot, was to stop factiously suppressing Vol, and viola  they saved some money by not continuing to short the VIX.