The bond market just BROKE! 😳 In just 3days, the 10Y Note Yield📈60points while the S&P500📉-8%. The largest 3day📈since ‘82+divergences in history🧵
- Thread starter ReasonableMatic
- Start date
Yeah......I'm gonna need a AI summary of all that. I can't quite grasp what all that means.
Kornball The Conqueror
Superstar
"FAFO" is an acronym that stands for "F*** around, find out," a slang term used to warn someone that their actions will lead to consequences"
call chinese peasants brehs
IIVI
Superstar
Retirement
Buying homes
Etc.
All out the window.
All I’ll say is you better hope you have a good, well-paying job and/or you’re critical to a company.
STEM degrees and/or military experience are golden tickets right now. Everyone clowning those degrees are about to find out why people say to go to college.
…. While they got our nuts in a vice grip
Depreciating Asset
Please pawg responsibly
I bought the dip after the market dropped 10%. But now it is dropping another 10% and counting.Global wealth being wiped out houses being foreclosed people losing jobs global chaos
Crypto bros who learned finance from IG: Buy the dip
When do you buy the dip breh??
Alright, let’s break this down step-by-step in simple terms, like I’m explaining it to a friend who’s never heard of these concepts before. The Twitter thread you shared from @KobeissiLetter is talking about something big that happened in the financial world—specifically in the "bond market"—and it’s causing a lot of chaos. I’ll explain what’s going on, what terms like "basis trade" and "yields" mean, and why it matters, all without getting too technical.
The person tweeting says this mess is because of something called the "basis trade" breaking down. Think of the basis trade as a clever trick some big investors (hedge funds) use to make money, but it’s risky. When it goes wrong, it’s like a domino effect that shakes up everything else. Let’s unpack this slowly.
The "yield" is how much profit you make from that bond, expressed as a percentage. Here’s the tricky part: when bond prices go up, yields go down, and when bond prices go down, yields go up. It’s like a seesaw. So, when the tweet says the "10-year note yield surged," it means the price of those bonds dropped a lot, pushing the yield (profit rate) higher.
A "basis point" is just a tiny unit—100 basis points equals 1%. So, a 60 basis point jump means the yield went up by 0.6% in three days. That might sound small, but in the bond world, that’s a massive move.
When everything’s calm, this works great. But if things get wild—like prices moving fast or unexpectedly—the trade can fall apart, and they lose money fast.
This creates a ripple effect:
The tweet says this isn’t about "foreign intervention" (like another country messing with us) but about this $800 billion trade imploding. It’s a self-made financial mess, and it’s not over yet.
Does that make sense? Let me know if you want me to dig deeper into any part!
What’s the Big Picture?
Imagine the financial world as a giant marketplace where people buy and sell things like stocks (pieces of companies) and bonds (loans to governments or companies). The "bond market" is where people trade these bonds, and something wild just happened there. In just three days, a key number called the "10-year note yield" shot up by 60 "basis points" (I’ll explain that soon), while the stock market (measured by the S&P 500, a list of 500 big companies) dropped by 8%. This is a huge, fast change—something that hasn’t happened this dramatically since 1982.The person tweeting says this mess is because of something called the "basis trade" breaking down. Think of the basis trade as a clever trick some big investors (hedge funds) use to make money, but it’s risky. When it goes wrong, it’s like a domino effect that shakes up everything else. Let’s unpack this slowly.
What Are Bonds and Yields?
First, let’s talk about bonds. A bond is like an IOU. When the U.S. government needs money, it borrows by selling bonds. If you buy a bond, you’re lending them money, and they promise to pay you back later with some extra (interest). The "10-year note" is a specific type of U.S. government bond that takes 10 years to pay back.The "yield" is how much profit you make from that bond, expressed as a percentage. Here’s the tricky part: when bond prices go up, yields go down, and when bond prices go down, yields go up. It’s like a seesaw. So, when the tweet says the "10-year note yield surged," it means the price of those bonds dropped a lot, pushing the yield (profit rate) higher.
A "basis point" is just a tiny unit—100 basis points equals 1%. So, a 60 basis point jump means the yield went up by 0.6% in three days. That might sound small, but in the bond world, that’s a massive move.
What’s the Basis Trade?
Now, let’s get to the heart of this: the "basis trade." This is a strategy that big investors, like hedge funds (fancy investment groups), use to make money from tiny price differences. Here’s how it works in simple terms:- Cash Treasuries: These are the actual bonds you can buy right now, like the 10-year note.
- Treasury Futures: These are promises to buy or sell bonds later at a set price. They’re like betting on what the bond price will be in the future.
When everything’s calm, this works great. But if things get wild—like prices moving fast or unexpectedly—the trade can fall apart, and they lose money fast.
What Happened in Those Three Days?
The tweet says the basis trade "broke," meaning it stopped working and started causing chaos. Here’s what likely happened:- Yields Shot Up: The 10-year note yield jumped 60 basis points in three days, and even more (25 points) in just a few hours one night. This means bond prices crashed suddenly.
- Stocks Fell Too: Normally, when people think the economy’s in trouble, they buy bonds (pushing yields down) and sell stocks. But here, both bond prices and stocks dropped together, which is weird.
- The Trade Unwound: The hedge funds using the basis trade got caught off guard. Their big, borrowed bets started losing money, so they had to sell their bonds quickly to cut losses. This "unwinding" flooded the market with bonds, making prices drop even more and yields spike higher.
Why Did This Happen?
A few things came together to make this mess:- Leverage Went Wrong: Borrowing 100 times your money is like building a house of cards—great until a breeze hits. When bond prices moved fast, the trade collapsed.
- Too Many Bonds: The U.S. government keeps selling more bonds to pay for its spending. More bonds mean lower prices (supply and demand), which stresses the trade.
- Volatility Spiked: Calm markets are good for the basis trade, but when things get unpredictable (like now), it’s a disaster.
Who’s Affected?
When hedge funds unwind these trades, they sell tons of bonds. Someone has to buy them, and that’s usually "broker-dealers" (middlemen who help trades happen). But these middlemen don’t have enough money or space to handle $800 billion worth of bonds all at once. It’s like asking a small shop to store a warehouse’s inventory—it doesn’t work.This creates a ripple effect:
- Bond prices keep falling (yields keep rising).
- Other markets, like stocks, get jittery too.
- Gold prices are going up because people see it as a safe place to put money when bonds and stocks look risky.
How Does This Compare to Other Events?
The thread mentions two similar past events:- Yen Carry Trade (August 2024): Another risky trade where people borrowed cheap Japanese yen to buy other things. When it unwound, markets crashed.
- March 2020: During the COVID panic, the basis trade collapsed too. The Federal Reserve (the U.S. central bank) had to step in and buy $100 billion of bonds per day to calm things down.
Why Does This Matter to You?
Even if you don’t trade bonds, this affects the economy. Higher yields mean borrowing money (like for a house or car) gets more expensive. If the stock market keeps falling, people’s savings and retirement funds take a hit. And if this gets worse, it could signal bigger problems—like a recession (when the economy shrinks).The tweet says this isn’t about "foreign intervention" (like another country messing with us) but about this $800 billion trade imploding. It’s a self-made financial mess, and it’s not over yet.
Summary in Super Simple Terms
Imagine a bunch of rich investors playing a high-stakes game with borrowed money, betting on tiny price differences in government bonds. They borrowed so much that when the game went wrong, they had to sell everything fast. This made bond prices crash, pushed yields way up, and scared the stock market too—all in just three days. It’s a big deal because it’s worth $800 billion, and the fallout is hitting everyone from Wall Street to regular people. Gold’s doing well because people are nervous, and this could keep shaking things up.Does that make sense? Let me know if you want me to dig deeper into any part!
IIVI
Superstar
Rates/Yields are mooning and plenty stock prices like the Mag7 are up today.
People really don’t know what they’re doing.
People really don’t know what they’re doing.
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Nkrumah Was Right
Superstar
How old are you?
During the Global Financial Crisis of 2007, the dip didn’t occur until MARCH 2009
dj-method-x
Superstar
none of this makes sense.
1/3
@KobeissiLetter
BREAKING: China’s Central Bank asks state-owned banks to reduce US Dollar purchases in response to 104% tariffs imposed at midnight.
2/3
@zubic_eth
Time to pull the plug
3/3
@AleSh09758566
Best comment here
To post tweets in this format, more info here: https://www.thecoli.com/threads/tips-and-tricks-for-posting-the-coli-megathread.984734/post-52211196
@KobeissiLetter
BREAKING: China’s Central Bank asks state-owned banks to reduce US Dollar purchases in response to 104% tariffs imposed at midnight.
2/3
@zubic_eth
Time to pull the plug
3/3
@AleSh09758566
Best comment here
To post tweets in this format, more info here: https://www.thecoli.com/threads/tips-and-tricks-for-posting-the-coli-megathread.984734/post-52211196
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