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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Oblomov who wrote (19438)9/18/2000 11:40:32 PM
From: pater tenebrarum  Read Replies (1) of 436258
 
yep...just as everybody was short the long bond when yield hit 6,70% at the last inflection point, and spread trades were concentrated on steepening curve bets, we have it exactly the other way around now. in both cases someone, somewhere is/was losing billions...a fact not easily discernible in the profit/loss statements of the known major market participants. presumably papered over somehow...

one must realize that all financial markets are subject to enormous leverage, and that numerous derivative related trading strategies are at work too...that tends to exacerbate the moves. since in bonds margin requirements are very low, market dislocations tend to surface on smaller moves in price than in the equity markets. a rough estimate for dislocations becoming likely in equities is a dump in the major averages exceeding 10%...that's where the heavily margined positions begin to look dicey - thus the rule of thumb that 'corrections' are usually contained at 10%. anything more, and forced selling leads to a big dump - see NAZ swoon in April, see also '98.
the bond market needs a smaller correction to become discontinuous...although i can't really put a figure on it.

good night!
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