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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Whatever Stephen Miller or Bill Ackman might say, it was the bond market that beat the Trump administration into an abrupt “PAUSE” for tariff negotiations.

The S&P 500 had nearly fallen into a bear market, but just two days of Treasuries puking was enough to force a rethink. The NYT has a good inside account of how much it swayed him. As Trump himself admitted:

I was watching the bond market. The bond market is very tricky, I was watching it. But if you look at it now it’s beautiful. The bond market right now is beautiful . . . I saw last night where people were getting a little queasy.

The bond market is hardly “beautiful” again. It’s notable that while stonks did stonksy things after president Trump backed down, the bond market has been much more circumspect. The 10-year Treasury yield actually rose again yesterday, and while it’s dipped a little today it is still at 4.32 per cent at pixel time, and well above the 3.86 per cent low touched less than a week ago.

But just how queasy did it get? Happily, JPMorgan’s rates analysts have published a report that looks across the Treasury market ecosystem, and the overall takeaway is that the Treasury market felt pretty sick, but not nearly as badly as it did in March 2020.

First of all, it definitely was an unusually turbulent week for Treasuries, and yields became completely unanchored from what the fundamentals would suggest.

Treasuries markedly underperformed other high-grade sovereign bond markets (oh, UK) and the depth of the market — as measured by the sum of the three best bids and offers across the Treasury curve — atrophied sharply.

However, as you can see from right-hand chart there, the Treasury market’s depth didn’t evaporate as dramatically as it did in March 2020, nor reach a similar low.

Yesterday the duration-weighted market depth across the Treasury curve reached a low of $67mn. That’s worst since the collapse of Silicon Valley Bank in early 2023 — and not great in a market that is supposed to be the most liquid in the world — but it is still better than the $38mn nadir of March 2020.

Moreover, JPMorgan’s analysts note that other measures of dislocations and distress were far less extreme. For example, while stale “off-the-run” Treasuries became less liquid and gapped out, it was nothing like what we saw in March 2020, and there didn’t seem to be any run to the liquidity of fresher “on-the-run” Treasuries.

What about the by-now infamous Treasury basis trade that Alphaville and others initially blamed for much of the turbulence?

JPMorgan says this is understandable — given the size and leverage involved — but it turns out that there aren’t that any signs of severe dislocations in various Treasury futures and their “cheapest-to-deliver” bonds, which is what you’d expect to see if there had been a disorderly unwind of basis trades:

While these are reasonable fears in deleveraging episodes, a close examination of Treasury futures bases show little signs of stress, and suggest that this is one corner of the broader market that is weathering the crisis very well so far.

Here’s a rundown of the gross and net basis across various Treasury futures, open interest in the contracts, implied repo rates and so on (zoomable version of the chart):

In other words, there probably were some Treasury basis trades being unwound, and simply given the size of the strategy this could have contributed quite a bit to the sell-off. Alphaville also gathers that things were starting to “crack” on Wednesday, so this could easily have become a bigger factor had Trump not bent the knee. But on the whole it was a fairly orderly basis trade retrenchment, and nothing like the chaotic unravelling that we saw in March 2020.

Similarly, JPMorgan says that wholesale funding markets — like commercial paper and repo — were volatile but remained orderly.

On the other hand, things were definitely not orderly in swaps. Or as JPMorgan puts it in understated sellsidese: “Moves in swap spreads have been nothing short of dramatic this week.”

On the face if it, this strongly implies that the swaps spread trade really was the biggest culprit in this latest bout of Treasury market turbulence.

Alphaville hasn’t been able to get even a rough estimate for how much money was betting on swap spreads normalising. The basis trade could still be the bigger contributor to the turmoil in Treasuries even though it was relatively less whiplashed, simply because of its size. But for now we can perhaps consider April 2025 primarily a Swapsmageddon [ed: Aswapscalypse, surely?] rather than a Basisclysm.

Anyway, all these trades are really part of the same elephant: interest rates arbitrage that rely on wholesale funding for massive amounts of leverage. And in an ideal world the US Treasury market wouldn’t be this susceptible to breakage.

Further reading:
— The trades threatening the Treasury market (FTAV)

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Dear Bond Vigilantes, 

As a great man once said: “I owe you an apology. I wasn’t really familiar with your game.”

Things were looking very dicey for Americans, after the White House introduced an aggressive and bafflingly calculated set of tariffs on basically all of its trading partners. Stocks were down, Treasury yields were up (prices down), and the dollar was down, too. None of that is good!

And last night, long-dated Treasuries started selling off. Hard. By the morning, market participants were talking about emergency Fed interventions. And while a cut seemed like a stretch, investors were looking out for pain in funding markets, which may have required liquidity interventions. 

But you know all of this, my wise newfound friends. You were there! We think. Probably.  

In the past, we’ve expressed scepticism that government spending and/or social programs would really unleash your full power against the US state. First, the name makes you sound like a bogeyman. Second, it’s a lot easier to threaten countries without reserve currency status. Third, the famous James Carville quote about how you scare everybody has become annoying. And finally, policymakers shouldn’t be too responsive to threats about you, because those threats are often used to stop government investment and spending, which aren’t inherently bad things!

Things have changed. Back then we didn’t know that the US executive branch would be willing to try an American version of Brexit, but even dumber and more harmful to the global economy. If anyone could achieve that, it would be America, but we’ll admit we lacked the necessary policy imagination to see it. 

Our dear vigilantes, you knew that Americans are not actually ready for factory life, despite the arguments of hundreds of sad and embittered young men online. And you stepped into the breach between the US and its Big Beautiful Leap Onshoreward. 

Do you really exist? Are you really a shadowy cabal of global investors that punishes governments for bad ideas? Well, that’s unclear.

But President Donald Trump told the press today he was watching the bond market last night, much like the rest of us, after saying he had noticed that people “were getting yippy.” 

So, as far as we’re concerned, you contributed to his decision to follow through with the 90-day pause that was mysteriously first reported on Monday.

This isn’t to say that the US is saved, because LOL, it is not. Who knows what fresh horrors await tomorrow and next week. That may be why Treasuries are still selling off, though the dollar seems to have at least halted its decline. 

There are still questions. For example: Is Europe included on the roster of non-retaliating economies, even though it approved additional tariffs just this morning? Why did it briefly sound like we put a 35% tariff on Mexico and Canada, and a 10% tariff on USMCA-compliant goods? CNBC is reporting that we haven’t. Still confusing. 

For now, though, it feels like a fast-moving disaster has become a slow-moving disaster. Maybe we can get some sleep and go outside with our kids this evening. And if you listen to the President’s comments, it sounds like you’re part of the reason for that. 

With sincere thanks, 
FT Alphaville

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If we’ve been struggling to sleep for the past few weeks, it’s probably because of this MainFT story from 25 March:

An unnamed large employer’s late supply of earnings information to the UK statistics agency risks skewing the country’s main official measure of wage growth, raising doubts about data that guides monetary policy. 

The intervening period has seen a surge in global market instability, no doubt due to traders’ uncertainty about who the mystery business upsetting the UK’s average weekly earnings could be, and what impact the revisions might have:

Despite these ructions, we didn’t see much sell-side speculation. Bruna Skarica from Morgan Stanley was one of the few to put her head above the parapet, writing last week:

It is hard to think of a single business which could move the numbers meaningfully, barring perhaps NHS England. Should revisions pertain to the NHS, they would show up in public sector and whole economy data.

Well, we have a new load of labour market data, and something of an answer.

And no, it’s not NHS England. Instead, it’s a major retailer. Or an exceptionally large repair company.

The ONS, naturally, is tight-lipped about the identity of this “one business”, and declined to offer more details to FT Alphaville. Can the data offer a clue?

Quoth the ONS:

As noted in the previous bulletin, we were working, as an exception, on opening up revisions further back in time than usual to allow for late and updated returns we received from one business to be included. We have now concluded this work and, as part of this release, we have revised the estimates back to October 2020 to improve the quality of our estimates.…

At the whole economy level, the revisions are generally small and within the range we see during seasonal adjustment reviews. As expected, as the estimates are broken down below the whole economy level, the revisions become larger. The largest revisions are seen in the wholesaling, retailing, hotels and restaurants sector and the retail trade and repairs industry, which warranted the exceptional revisions to be implemented.

They add, channelling Morrissey:

Some periods see bigger revisions than others.

Despite this, the ONS seems a bit shy to show just how acute those revisions are. The section of today’s AWE release covering the adjustments includes a whole economy view…

…a private-sector view…

…and a wholesaling, retailing, hotels and restaurants sector view…

…but pulls up just short of giving us a chart for the most granular (and therefore juicy) level, instead supplying only words:

The retail trade and repairs industry showed the largest revisions. The largest revisions were for the periods between the three months to November 2021 to May 2022, when the revisions were between 1.5 to 3.4 percentage points and more recently from the three months to July 2024 to September 2024, when they were around 2.1 percentage points.

To get our chart on, we had to go to X04: Average Weekly Earnings Supplementary Analysis, a spreadsheet released alongside today’s release. That spreadsheet has specific monthly AWE figures for before and after the revisions. Here’s how they looks (NB unlike the other charts above, these figures are not seasonally adjusted):

It’s a pretty big jump once we get down to this level. May 2024 is particularly notable — retail and repair AWE that week were 28.7 per cent higher than the ONS previously thought.

The gap, as you might guess from the shape of the line above the pink line above, appears to be in large part down to a one-off bonus: the ONS’s revisions put retail and repairs AWE £19 higher than month, and ascribe £17 of that jump to bonuses:

So, what do we know?

— one business
— retail or repair
— above-average pay (given it pulled up the whole series)
— big, like shift-the-whole-series big
— paid out a substantial bonus in May 2024

And since we’re a blog, we can idly speculate.

Last April, the UK’s supermarket, Tesco — one of the UK’s biggest private-sector employers — announced a £70mn bonus scheme for its 220,000 staff.

According to a post on the Tesco subreddit, this took the form of a “one-off payment of 1.5% of eligible earnings for hourly staff in UK stores, CFCs, UFCs, CEC and distribution”, that landed in Tesco employees’ May pay packet.

So if we had to bet, it’d be Tesco. If you have a better guess, let us know in the usual ways.

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Hahahahaha OK then!!!!

For the next 90 days, the US will impose 10-per-cent universal tariffs instead of the “reciprocal” tariffs announced by the White House last week. At least for countries that haven’t retaliated.

China is an especially glaring exception. President Trump announced the pause at the very end of a Truth Social post that was supposedly focused on an increase in tariffs against China to 125-per-cent. That post came less than four hours after President Trump posted that it was “a good time to buy”. ¯\_(ツ)_/¯

In the 90-day pause period, it seems that the US president wants to simply Do Deals with every country in the world. In the interim, the US is imposing an additional universal 10-per-cent tariff, as Treasury secretary Scott Bessent said in a press conference, adding that US officials have a meeting with Vietnam today.

One important issue here: Bessent didn’t answer a reporter’s shouted question about the EU, which voted to approve additional tariffs against the US this morning.

Anyway, the stonks are stonking. The S&P 500 was up almost 8 per cent around 2pm in New York:

And the Nasdaq Composite was ripping, up 9.5 per cent, despite the fact that the back-and-forth tariff fight with China is ongoing.

Most importantly, the shockingly quick Treasury-curve steepener trade we saw over the past few days is reversing itself.

To explain: Treasuries maturing in two years (and less) are more closely linked to near-to-medium-term Federal Reserve policy decisions. Yields have been falling since February, as traders price rising risk of recession and at least Fed “insurance” cuts. Earlier today, the bond market carnage was so severe they were even pricing in the possibility of emergency monetary easing.

On the other hand, the value of longer-dated Treasuries are more dependent on inflation (to simplify, a bond’s principal repayment is worth even less in 30 years if inflation is high).

So the fact that the two-year Treasury yield has soared the most — an eye-popping 30 basis points to the 10-year yield’s ~15 basis points — seems to imply that the near-term doomsday scenario is less of a risk, in markets’ view.

So Great Depression 2 is off, we guess? For now.

But hey! It looks like that Walter Bloomberg has been vindicated. Same goes for the bank trading desks that were circulating the headlines before he did on Monday.

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

In the scramble to figure out how exactly “Liberation Day” is going to upend global trade, nuclear errors may occur.

Economists at the Federal Reserve Bank of Richmond released a great chart (covered in mainFT) identifying the sectors that will be most impacted by Trump’s sweeping trade levies.

The first four — leather goods, apparel, furniture, and textile product mills — made a lot of sense. These industries all import heavily from the countries facing the steepest tariffs, like Vietnam, China and Cambodia.

But the fifth item prompted a bit more head-scratching. And when the Richmond Fed kindly provided the underlying data for the chart, they also supplied a clarification for the ages.

PS: we had a typo in one of the industries, instead of “Nuclear Warheads” it should have been “Support Activities for agriculture and forestry.”

You might be wondering how “nuclear warheads” ended up in place of “support activities for agriculture and forestry.” And if you’re developing conspiracy theories about the cover-up of nuke inflation, we’re afraid we must let you down: it seems it really was a typo.

The North American Industry Classification System (NAICS) code for “support activities for agriculture and forestry” is 115. The Product Service Code (PSC) code for “nuclear warheads and warhead sections” is 1115.

As fat-finger errors involving nuclear warheads go, it’s probably one of the better ones.

Feeling a little more relaxed, FT Alphaville started asking the obvious question: what on earth are “support activities for agriculture and forestry”?

Well, according to the Bureau of Labor Statistics, “Industries in the Support Activities for Agriculture and Forestry subsector provide support services that are an essential part of agricultural and forestry production.”

So that’s that all cleared up.

The chart on the Richmond Fed’s website has now been “updated to accurately reflect the proper industries” and the original work has been lost to history. Here’s the disarmed version: