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KILLER_CLOWN
08-07-2011, 11:25 PM
July 25th, 2011

Jack Barnes: Someone dropped a bomb on the bond market Thursday – a $1 billion Armageddon trade betting the United States will lose its AAA credit rating.

In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world.

The massive trade wasn’t placed in bonds themselves; it was placed in the futures market.

The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01.

The value of the trade was about $850 million dollars. In simple terms, if that was a direct bond buy, no one would be talking about it.

However, with the use of futures, you have to have margin capacity behind the trade. That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.

You only do this if you see an edge.
This means someone is confident that the United States is either going to default or is going to lose its AAA rating. That someone is willing to bet the proverbial farm that U.S. interest rates will be going up.

I believe what happened is a debt-ceiling deal was done in Washington and leaked to a major proprietary trader. Everyone knows the debt negotiations in Washington have been an extreme game of brinksmanship between political parties, but now someone knows how that game played out.

This had the hallmarks of one of the largest bond shops in the world knowing something the rest of the market didn’t.

The number of shops or even central banks that can take on this level of market risk is extremely small. Some that come to mind are hedge fund manager John Paulson, Bill Gross’s PIMCO, and the U.S. and Chinese central banks.

Paulson already scored big – about $6 billion big – on a similar trade years ago when he bet against subprime mortgages, the investments that helped bring down Lehman Bros. and many other investors.

Whoever was behind it wanted a trade on ASAP, and didn’t care about the ripples they would cause.

http://moneymorning.com/images2/BondMarketBombing.jpg

You can see how this trade caused fear to be unleashed in the market once it got out and the implications hit by looking at U.S. Treasuries. People who were long 30-year Treasuries panicked as they saw the huge short put on the futures market, and started to unwind their long exposure.

What you, as investors, should do now is look at the bond exchange-traded funds (ETFs) that provide a positive rate of return when U.S. Treasuries drop in value. Yields are going up sooner rather than later, if the person behind this Armageddon trade is correct.

http://etfdailynews.com/2011/07/25/investors-the-1-billion-armageddon-trade-placed-against-the-united-states/

Bewbies
08-07-2011, 11:49 PM
I'm ignorant in these matters, but I bet all my casino cash Soros was involved in this somewhere...

Param
08-07-2011, 11:56 PM
So the guy gambled right is what you're saying OP.

KILLER_CLOWN
08-07-2011, 11:57 PM
So the guy gambled right is what you're saying OP.

doubtful.

orange
08-08-2011, 03:11 AM
A repeat of this last Thursday wouldn't surprise me at all. That day's opening has a definite unnatural look to it. I've been thinking some sort of auto-selloff, but I read a BusinessInsider article Sunday where the author proposed a leak of the S & P downgrade and I'm leaning that way.

orange
08-16-2011, 03:48 AM
A repeat of this last Thursday wouldn't surprise me at all. That day's opening has a definite unnatural look to it. I've been thinking some sort of auto-selloff, but I read a BusinessInsider article Sunday where the author proposed a leak of the S & P downgrade and I'm leaning that way.

The SEC is Investigating S&P for Insider Trading on the U.S. Downgrade
By Ujala Sehgal | The Atlantic Wire – Sun, Aug 14, 2011

The SEC is investigating whether there was any insider trading done by employees of Standard & Poor’s ahead of its credit downgrade of the U.S., the Financial Times reported late last week. The SEC’s examination staff, which oversees credit raters, has asked S&P to disclose who within the company knew about the downgrade before it happened. The commision indicated to FT that it is not aware of a leak from someone within the credit agency or an unusual trade. However, Market Watch reports that regulatory observers were calling for an investigation last week because of heavy trading volumes before the downgrade:

Regulatory observers are focusing, partly, on a heavy trading volume and a major sell off of equity securities at one point on Friday, responding to speculation rampant in the markets that S&P was going to downgrade the U.S. debt later that day. S&P did, in fact, lower the U.S. government’s top-tier credit rating late that day a notch to AA+.

The Wall Street Journal also notes that:

Remember, rumors of a post-bell downgrade were rampant on Wall Street very early on Friday, rumors that turned out to be true. It sure sounded like a leak, though the leak could have come from either S&P or Treasury. It seemed inevitable there would be an investigation, though it could be hard to find anything.

What they are looking for, securities law professor John Coffee tells Market Watch, is "significant trading activity such as attempts to short Treasury securities, in the period immediately before the downgrade." But this information would be hard to hard to tie to illegal activity by the S&P. John Jay, analyst at the Aite Group in Boston, told Market Watch that, “When a rumor starts it doesn’t have to begin with a person explicitly whispering somewhere saying this is what we’re doing... Some can argue that S&P had been signaling their thought process a couple weeks prior to the downgrade.” Nonetheless, if any concrete evidence is found against the S&P, unlikely though that may be, based on a 2006 statute -- the Credit Rating Agency Reform Act -- the credit agency could have its license registration revoked if it leaked information before making the downgrade information public.

http://news.yahoo.com/sec-investigating-p-insider-trading-u-downgrade-193237170.html

BucEyedPea
08-16-2011, 06:23 AM
I'd bet someone may be leaning on S&P on orders from the WH. It's happened before when politicians don't like someone. Our govt is corrupt as hell these days.