Historic Crash in Bond Yields and More Coming
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.
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.
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
X: Someone big literally doesn't exist anymore
X: WE'RE RUINED MORTIMER
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: 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
Q: MORTIMER WE'RE RUINED lmfao
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