"Absolutely Spectacular Meltdown": The Basis Trade Is Blowing Up, Sparking Multi-Trillion Liquidation Panic
(www.zerohedge.com)https://www.zerohedge.com/markets/absolutely-spectacular-meltdown-basis-trade-blowing-sparking-multi-trillion-liquidationTo summarize:Multi-trillion basis trade is blowing up and countless funds and banks are unwinding positions, but...
There is not nearly enough liquidity in the system
The lack of liquidity shockwave is rampaging across all markets, sending stocks plunging (liquidation panic), bonds crashing (yields up 50bps in 2 days), and a flight to safety in FX (yen soaring... but at some point the inflection point will get hit and there will be an acute shortage of dollars as the global synthetic dollar short at around $6 trillion is even bigger than the basis trade).
We have critical liquidity drainage events as soon as tomorrow (the 10Y auction followed by the 30Y auction on Thursday), and if there is not enough liquidity in the system, we may have an unofficially failed auction - yes Dealers would in theory take down the whole thing, but if we get a 40 or 50% dealer award, it's the same as a failed auction.
