Historic Crash in Bond Yields and More Coming


Bonds yields crashed this week. The Fed made emergency inter-meeting cuts last week but that is just the start.

Despite a late day rally in the stock market accompanied by a surge in yields, both bond yields and stock yields closed deep in the red.

Moreover, Fed fund futures as noted by CME Fedwatch imply another 75 basis point cut and I agree it's very likely.

Yield Probabilities

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A week ago the expectation for March 2, the expectation for the FOMC meeting on March 18 was for the Fed to hold steady, then at 175-200 basis points.

On March 3, I noted Fed Makes Surprise Inter-Meeting 50 Basis Point Rate Cut

Some of us were not surprised and I was in that group.

Today we see market expectations of another 75 basis points. That would put the Fed Funds rate at 25-50 basis points. Wow.

Options Market Maker Carried Out

The market staged a late day rally but still closed on the red.

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ZeroHedge has a fascinating story what happened: "Someone Big Was Utterly Blown The F**k Out": Here's The Reason Behind Today's Unprecedented VIX Move

As the following chat session between three individuals, which includes a former CME index option trader (X), all of whom wish to remain anonymous lays out, what happened is that the VIX ramped as a major Chicago market maker was caught in the infamous gamma short squeeze, which forced them to keep buying the VIX as the VIX soared, in the process ending the VIX even higher, only to get margin called out of their position by their clearing firm, puking their entire position while liquidating anything they could, and unleashing the VIX selling avalanche and the 700 Dow point rally.

X: Someone got carried out of the pit in spx options 15 minutes ago

X: Utterly blown the f*ck out

X: Their clearing firm literally liquidated some big market maker in Chicago hahahaha

X: Go to Ceres today

Y: Omfg

X: Someone big literally doesn't exist anymore


X: It caused a huge dislocation in the vix

X: You could see them blow out 😂

Q: Vix 52

Q: 14 day vol is 60 lol

Q: Bro

Q: Someone big in Chicago just got carried out of the pit

Q: Their clearing firm mega puking them out CAUSED A SEVEN POINT POP IN THE VIX

Q: Reversed in minutes


That's a partial transcript.

I see no other reports on that story, but given action in the VIX, Fed Fund Futures, Oil, etc., it seems very credible.

When you sell options and are not properly hedged, this is exactly the kind of thing that can happen.

Mike "Mish" Shedlock

Comments (25)
No. 1-8

I LOVE when this happens!


Mortimer needs to collect his $1 bet.


dislocation is very fun, I guess enjoy your pain


Wow if this out performance of the bond market keeps up, pension funds will be 100% funded. The fixed income crowd, banks, insurers, etc., are having the best of times at the moment with the collapsing rates. The elderly will be overjoyed opening their brokerage statements next month and seeing crazy gains in their longer-term fixed income. In most cases, fully offsetting stock market losses.

Of course, not sustainable, but at least for the moment... Hyperbolic moves never tend to end well.

Clover NL
Clover NL

What is the likelihood of the Fed Funds rate going negative?

Runner Dan
Runner Dan

Good thing the Fed started raising rates 8 years ago (when Obama was in office), so now they have lots of wiggle room.

What?! They didn't?!

Tony Bennett
Tony Bennett

Japan 10yr yield ... -0.134

German 10yr yield ... -0.712

Only a matter of time till Treasury 10 yr joins the club.


Can someone please explain the exact or estimated timeline of what was liquidated and why. The conversation between traders is somewhat cryptic to me. What was being held on leverage, for what purpose etc.

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