MARKET-ROILING TRADE LIKELY NOT 'FAT-FINGER' ERROR
- By JACOB BUNGE
A big asset manager pushed through a large sale of Treasury futures early Wednesday and followed it up with subsequent trades that roiled currency and metals markets, according to traders.
Early speculation that the trading was a so-called fat-finger error has largely been debunked, but traders saw signals that part of the trade was unintentional.
The sale of more than 100,000 futures on U.S. government issues cascaded across traders' screens just minutes after Federal Reserve Chairman Ben Bernanke began to speak in Washington, who surprised some investors with a downbeat assessment of the U.S. economy.
Effects of the big trade quickly spilled into currency markets, where the U.S. dollar strengthened against the euro and the Australian dollar, while the price of gold and silver plunged.
Traders in Chicago, declining to identify the asset manager that placed the initial orders, said the wave of selling was amplified by Mr. Bernanke's testimony, in which he offered no clear signs that the Fed plans to further ease lending conditions, contrary to many investors' expectations.
"I think people were hoping Bernanke would say something," said Chuck Retzky, director of futures sales for Mizuho Securities USA.
"Not that he was hawkish, but he didn't mention a glaring need for [another round of quantitative easing], and that was priced into everything—gold, silver, Treasurys, stocks," Mr. Retzsky said. "When he didn't refer to it people just took their chips off the table."
Traders said that an initial sale of about 30,000 "classic" Treasury bond futures—linked to issues carrying maturities between 15 and 25 years—and 35,000 10-year note futures was followed up with a round of transactions that shuffled the fund's holdings of 10-year contracts from futures expiring in June to those in March. That subsequent "roll" trade suggested that the investor had mistakenly sold some June-dated contracts, they said.
Some in the market said they immediately assumed that the transactions—which were large compared to the average 5,000 to 15,000 contracts being traded after Mr. Bernanke began to speak—was a so-called fat-finger error, or a firm making a mistaken, outsized trade.
However, the fact that the selling was spread across multiple markets suggested to others that it was an intended move. A spokesman for CME Group Inc., which runs the main market for trading U.S. Treasury futures, said there had been no erroneous trades reported. No transactions were voided following the episode.
Effects of the trading echoed across several different markets. In cash Treasurys, the benchmark 10-year Treasury note's yield spiked from 1.94% right before Bernanke's comments hit the tape to as high as 2.01%. But in recent trade, the yield had eased back, with the yield up 0.05 percentage point to 1.981%.
Heavy selling separately hit silver and gold futures as well as currency markets, in what some traders speculated was trading triggered by algorithms that monitor fixed-income markets.
The euro and the Australian dollar were both pushed lower against the U.S. dollar amid heavy trading around the time of the incident. The euro traded as low as $1.3334 and the Aussie went to $1.0756
