This is great, as you’d expect. But IMO the missing part of a lot of the discussion around the hedge fund basis trade unwind in March is what *could* have happened. 1/n
Yes, hedge fund selling of Treasuries was in pure nominal quantity certainly less impactful than the broad, global “dash for cash” that led foreign central banks and mutual funds to dump Treasuries.
That dash for cash overwhelmed market-makers, and caused the off-the-run/on-the-run and cash-v-futures dislocations. That in turn impacted Treasury relative-value trades at hedge funds. So one can see them as “victims” rather than “culprits”. At least in the initial stages.
BUT that doesn’t mean that the basis trade didn’t start to unravel and exacerbated the “dash for cash” dynamic and worsened the dislocations.
A lot of the biggest Treasury RV players have *major* clout with the big banks, and were probably able to hang on to positions, while smaller and more leveraged players got shaken out. That explains why scale isn’t quite as big as foreign central banks etc.
But if the Fed hadn’t acted decisively when it did, it seems clear to me that even the bigger hedge funds would probably have been margined out of the trades, causing a mass disorderly unwind of most of the Treasury RV trades.
That would have absolutely hammered the Treasury market at a time when it was already reeling from the massive global dash for cash. So I think the basis trade was initially a victim, later an exacerbator AND ultimately a potentially systemic risk for Treasuries in March.
Counterfactual history is obvs iffy, and hard to image a scenario where Fed wouldn’t have acted aggressively. But think some of the studies that *purely* look at what hedge funds sold in March & conclude “nothing to see here” are either being naive or deliberately disingenuous.

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More from @RobinWigg

5 Dec
*The machines are listening.* Executives are now engaged in a cat and mouse game with AI-powered trading algorithms, and constantly changing how they talk to avoid negative words, phrases and verbal tics that the algos might react to. on.ft.com/3mFkFIO
There’s been an explosion of high-frequency machine downloads of US regulatory filings in recent years, as quant hedge funds simply train algorithms to instantaneously read and trade thousands of reports - volumes that no human portfolio manager could ever hope to read.
Man Group’s Luke Ellis is one of the CEOs who has as a result of machine reading been coached to avoid certain phrases and words.
Read 7 tweets
3 Dec
I only have one Valéry Giscard d’Estaing anecdote, from a conference at an Irish castle back in 2012. ft.com/content/b44c1c…
He was on a panel with a host of bigwigs, like @paulkrugman and Peter Mandelson. The Eurozone crisis was raging, and Giscard d’Estaing proposed that Greece take a two-year "holiday"from the euro to sort itself out.
I remember @paulkrugman visibly spluttered at what was obviously an insane idea - Greece perhaps should have exited the euro, but the idea of a temporary "holiday" was preposterous. But Paul was too polite to say how dumb it was.
Read 5 tweets
3 Dec
Welcome to the "Omnirally". The development of Covid vaccines has helped nurture the single biggest monthly gain for global equities on record. But is the euphoria obscuring some festering economic challenges? My latest big read: ft.com/content/d78563…
For sure, the global economy has bounced far more strongly than we dared hope earlier this year, and corporate profits will follow next year.
But the optimism is palpable. Fund managers haven't been this optimistic that growth and profits will strengthen in nearly two decades.
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24 Nov
Quants continue to ramp up the use of machine learning, according to a Morgan Stanley survey of clients.
Risk of overfitting (ML finding spurious correlations from data mining) is the biggest risk.
Unsurprisingly, quants are divided on factors. Think there's an element of denialism with the ones saying their experience has been positive over the last year. You can still be a believer and admit the last year has been profoundly shitty.
Read 8 tweets
17 Nov
With vaccine news adding even more fizz to financial markets, we are now approaching "full bull", according to Bank of America's Michael Hartnett.
The love for emerging markets is certainly pretty fulsome. cc @AllThatIsSolid
@AllThatIsSolid Growth expectations now at at the strongest since the early noughties.
Read 5 tweets
11 Nov
I have a new big read out, on the renewed challenges that active fund managers have had in fulfilling their promise to outperform in rockier markets - and the implications of that. ft.com/content/621d51…
There's now north of $12tn in index funds and ETFs, after a decade of breakneck growth.
Even that underestimates their heft. BlackRock estimated in 2017 that there is another $6.8tn of institutional or internal indexed strategies just on the equities side, so we're almost certainly talking well over $20tn in total now. blackrock.com/corporate/lite…
Read 19 tweets

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