Fed Says October 15 Bond Plunge Involved Significant Hedge Funds Repositioning

When bond yields plunged on October 15, 2014, dropping from just above 2 percent to near 1.8 percent in a matter of minutes, the initial assumed culprit was a “fat finger mistake,” while others suspected high frequency trading. Many calculated that the event was so “rare” that it was between a seven to ten sigma event. According to a new study from the U.S. Federal Reserve, hedge fund making large adjustments to their interest rate exposure early in the morning was involved. Still others questioned the market liquidity, as a change from large banks providing liquidity to hedge funds has been occurring in some markets.

Hedge funds: Bond market plunge

The day of the bond market plunge...