Everyone had heard it. No one knew exactly who it might be.

But it seems rumors of a West Coast hedge fund blowing up go round the market now as often as we used to hear

Boris Yelstin

was on his deathbed.

And today, as the yield on the two-year Treasury lifted above the 30-year's, setting off tremors in swap spreads; as the yen, the euro, the rand, the Singapore dollar and the Australian dollar slipped against the greenback; as Treasuries rallied on a day they shouldn't have; and as stocks went into a swoon, the rumors were flying as fast as the sell slips. Someone was on the wrong end of a trade, and somebody was in a world of pain.

"Every time there's a debacle now, it's a West Coast hedge fund," scoffed Kyle Rosen of

Rosen Asset Management

in Santa Monica, Calif., pointing out the importance, perhaps, that technology investors have become as keepers of the bull market. "At a certain point on Friday, people were making stuff up."

The root of the problem was likely the flattening yield curve. Yield differences between Treasuries of different maturities are commodities unto themselves. When those differences shift, as they have in the last several weeks, it causes pain in some quarters -- in this case, the swaps spread market. At the margins, it's likely that one or more hedge funds or institutions were forced to buy bonds today as part of a derivatives trade unwinding.

"There was definitely a forced buyer in the market today in the 30-year bonds," said Jim Bianco of

Bianco Research

in New York City. "That's what the squeeze is. And no, I don't know who it is."

Then what of all those other rumors -- the one about the fund that was long the rand against the dollar, for instance? True, there were big movements in a number of currencies against the dollar. And in the stock market, there was talk of funds selling stocks to cover other bets.

But it may be that market players and observers have become so conditioned to the idea of the

big bad event

, the one trade gone awry, the hedge fund that (a la

Long Term Capital Management

) collapses, that we have got into the habit of jumping to conclusions.

And jumping to conclusions may have been exactly why the problem in swaps spread to other markets. When investors saw money running into the long bond -- despite a strong

gross domestic product

report and

Economic Cost Index

-- they sold first and asked questions later. Something was going on, and it was time to put the cash someplace safe.

"The market feels like it's in risk-reduction mode here," said one fixed-income portfolio manager.

Moving out of risk meant moving money back into dollar assets -- roiling the currency market, because most investors have been betting on a weaker dollar. It meant taking money out of stocks -- particularly in the high-premium tech area. It meant putting money into Treasuries. All of these things fed on each other, enforcing the idea that something was gravely wrong.

And eventually, there was.