As the financial crisis ricochets back and forth across the Atlantic, with the blowout of Credit Suisse on the European side, and of Silicon Valley Bank, Signature Bank, Silvergate Bank and imminently First Republic Bank on the American side, there have been massive financial flows out of the trans-Atlantic banking system and into Treasury bonds, both in the U.S. and Germany.
Hedge fund speculators reportedly jumped into the fray this week, according to an account published by Reuters, and wreaked havoc. “Wild price swings in government bonds on a scale not seen in decades given banking sector turmoil have sparked concern about the smooth functioning of a market considered vital to the global financial system,” Reuters wrote with alarm. “Trading in short-dated German bond futures was briefly interrupted due to volatility after Thursday’s European Central Bank’s rates decision [on March 16] and on Wednesday CME Group briefly halted trade in some U.S. interest rate futures.”
“Both the U.S. and German bond markets showed the biggest daily moves in at least 28 years on March 15, before rising sharply the next day,” according to Reuters. One alarmed trader told the news service: “In the bond markets these are big swings and that tells me everything is not okay.”
The London Financial Times also sat up and took note. “On Monday this week, the most important market in the world went, to use the technical term, completely bananas.… This time, the market reaction in Treasuries was nothing short of apocalyptic.” They reported the view of an insider, Christian Kopf, head of fixed income at Union Investment, “who said that the Treasuries market has become a `hall of mirrors,’ packed full of hedge funds trading blows with the Fed.… `The most important market in the world is being dominated by a bunch of hedge funds,’ says Kopf.”
