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

As we wrote overnight, there are growing signs of stresses in the bond market. It’s hard to say whether swap spread or basis trades getting liquidated is the biggest contributor, but Treasury markets are unusually and unnervingly turbulent.

At pixel time the 10-year Treasury yield has climbed another 9 basis points to trade at 4.35 per cent and the 30-year yield has risen 12 bps to 4.83 per cent — taking the rise for both from the April 4 low to about 50 bps.

This is not what should happen when other financial markets are in turmoil, and is eerily reminiscent of the scarier bits of the Covid-19 market meltdown. It’s just not a good thing when a market that is supposed to be the ultimate safe port in a storm is suffering from its own tempest.

As a result, markets are beginning to price in the possibility that the Federal Reserve will once again have to ride to the rescue. From Deutsche Bank’s morning note, with their analysts’ emphasis below:

Given the scale of the rout, that’s raising questions about whether the Federal Reserve might need to respond to stabilise market conditions, and we can even see from fed funds futures that markets are pricing a growing probability of an emergency cut, just as we saw during the Covid turmoil and the height of the GFC in 2008.

Unfortunately, Alphaville’s Refinitiv account is on the fritz so we can’t check out exactly how likely markets are indicating this is, but it’s very understandable given the myriad signs of stress in financial markets.

Some analysts are attributing the most recent Treasury sell-off to yesterday’s weak auction of three-year notes, which raises concerns that some big investors are becoming more reluctant to keep funding the US. That might bode badly for the auction of $39bn worth of 10-year Treasuries later today, and a 30-year auction on Thursday.

However, the fact that this is a continuation of a trend ever since Friday afternoon suggests that the bad-auction explanation is itself weak. To Alphaville, this smells more like leveraged hedge fund Treasury trades getting liquidated. As a Wall Street trader told our MainFT colleagues last night: “It’s a proper, full-on hedge fund deleveraging.”

We spent most of yesterday’s post explaining the by-now infamous Treasury basis trade, but it increasingly looks like the unwind of a popular swap spread trade could also be a major contributing factor.

As you can see, the spread between Treasuries and SOFR — the Secured Overnight Financing Rate that has replaced Libor as the dominant measure of overnight borrowing costs — has become pretty extreme. This reeks of some hedge funds getting walloped:

In short, here’s how we gather this trade worked (let us know if we’ve screwed something up in the comments though):

Because of various bits of post-GFC regulation, US banks are constrained in how many Treasuries they can hold. Meanwhile, cleared interest rate swaps are less capital-intensive, which has led to swap spreads — the difference between the fixed rate bit of an interest rate swap and the comparable government bond yield — to mostly stay in negative territory for many years. Here’s a good BIS explainer.

However, at the start of the year, a lot of people were getting excited by the prospect of the new Trump administration unwinding a lot of the post-crisis regulatory edifice. In February, Barclays estimated that the scrapping of the “supplementary leverage ratio” alone could create about $6tn of “leverage exposure capacity”, which would in particular help Treasuries.

As a result, hedge funds went long Treasuries and short swaps in the expectation that the spread would flip from being deeply negative to closer to zero. But the convergence trade only works with lots of leverage. And the recent volatility will have ratcheted up margins across the board, forcing some to unwind these trades. That in turn turns the swap spread even more negative, and leads to another round of margin calls, and so on.

Aaaanyways . . . Alphaville suspect that the Fed will be loath to unveil an emergency rate cut simply to bail out mega-leveraged Treasury arbitrage trades, like it did in March 2020. After all, that was a unique threat to the financial system. This is just them being positioned foolishly ahead of a tragicomically predictable tariff shock.

However, if Treasuries keep getting caned like this the Fed might have to do something, given how troubles in the US government debt market can easily ricochet elsewhere. As Deutsche Bank noted, this is “an incredibly aggressive sell-off”.

Yesterday our MainFT colleagues published an important story about some of the US government bond market’s weird behaviour lately, which, unfortunately, quickly got buried by the unending avalanche of other news.

Fortunately, it also helps explain why US Treasuries have gotten hit hard again today, despite the stock market dipping back down again on more bad tariff headlines. From Monday’s story, with Alphaville’s emphasis below:

US government debt sold off sharply on Monday as hedge funds cut back on risk in their strategies and investors continued shifting into cash during a third day of acute tumult on Wall Street.

The benchmark 10-year Treasury yield jumped 0.19 percentage points on Monday to 4.18 per cent, the biggest daily rise since September 2022, according to Bloomberg data. The 30-year yield jumped 0.21 percentage points, the biggest move since March 2020.

. . . Investors and analysts pointed in particular to hedge funds that took advantage of small differences in the price of Treasuries and associated futures contracts, known as the “basis trade”. These funds, which are large players in the fixed-income market, unwound those positions as they cut back on risk, prompting selling in Treasuries.

“Hedge funds have been liquidating US Treasury basis trades furiously,” said one hedge fund manager.

The sell-off has now continued into Tuesday, with the 10-year Treasury yield climbing 4.29 per cent at pixel time. That’s a pretty chunky move of 13 basis points on the day, and the 10-year yield has now see-sawed up 42 bps since its low on April 4. That’s pretty noticeable, given that “risk-off” remains the dominant sentiment.

As Bespoke Investment Group’s George Pearkes wrote in a report today:

While the historic reversal in stocks today that saw the market close near the lows down over 1.5% having been up more than 4% at the highs is concerning, the rumblings in fixed income feel far more problematic. Over the last two days, 30y UST yields have risen a brutal 35 bps. While that’s not an all-time superlative, it’s extremely unusual, in the top 0.4% of all 2-day moves for the long bond yield.

What’s much more unusual is the fact that this large surge in bond yields has come with stocks dropping. In fact, this is the largest two-day increase in 30y yields with stocks down at least 1.5% over the same span since 1982!

It’s always hard to disentangle market drivers, and there are probably multiple culprits behind the Treasury sell-off, such as a weak auction of three-year notes and the Treasury swap spread trade unwinding. But the Treasury basis trade appears to be a big factor behind the cracks in the US government bond market.

As many Alphaville readers will know, we are above-average interested in the Treasury basis trade, and have been ever since it scared the bejesus out of us back in March 2020. For the uninitiated, here’s a quick explainer of what the Treasury basis trade is, and why it’s potentially problematic.  

Treasury futures contracts typically trade at a premium to the government bond you can deliver to satisfy the derivatives contract. That’s mostly because they are a convenient way for investors to gain leveraged exposure to Treasuries (you only have to put down an initial margin for the nominal exposure you’re buying). Asset managers are as a result mostly net long Treasury futures.

However this premium opens up an opportunity for hedge funds to take the other side. They sell Treasury futures and buy Treasury bonds to hedge themselves, capturing an almost risk-free spread of a few basis points. Normally, hedge fund managers don’t get out of bed for a few measly bps, but because Treasuries are so solid you can leverage the trade many, many times.

Let’s say you put down $10mn for Treasuries and sell an equal value of futures. You can then use the Treasuries as collateral for, say, $9.9mn of short-term loans in the repo market. Then you buy another $9.9mn of Treasuries, sell an equivalent amount of Treasury futures, and the repeat the process again and again and again.

It’s hard to get firm idea of what is the typical amount of leverage that hedge funds use for Treasury basis trades, but Alphaville gathers that as much as 50 times is normal and up to 100 times can happen. In other words, just $10mn of capital can support as much as $1bn of Treasury purchases.

And how significant is the trade in aggregate? Well, it’s an imperfect measure for a lot of reasons, but the best proxy for its overall size is the net short Treasury futures positioning of hedge funds, which currently stands beyond $800bn, with asset managers the mirror image on the long side.

The problem is that both Treasury futures and repo markets demand much more collateral when there is an unusual amount of volatility in the Treasury market. And if the hedge fund can’t pony up then lenders can seize the collateral — Treasury bonds — and sell them into the market.

As a result, it is a major danger lurking inside the market that is supposed to be the financial system’s equivalent of a bomb shelter, as Apollo’s Torsten Sløk pointed out earlier today:

Why is this a problem? Because the cash-futures basis trade is a potential source of instability. In case of an exogenous shock, the highly leveraged long positions in cash Treasury securities by hedge funds are at risk of being rapidly unwound. Such an unwind would have to be absorbed, in the short run, by a broker-dealer that itself is capital-constrained. This could lead to a significant disruption in market functions of broker-dealer firms, such as providing liquidity to the secondary market for Treasuries and intermediating the market for repo borrowing and lending.

We saw exactly how this latent vulnerability can morph into a systemic risk in March 2020, when a “dash for cash” by foreign central banks and bond funds swamped by investor withdrawals were forced to ditch the most sellable asset they had: US Treasuries. That in turn pummelled hedge funds that had put on monstrously leveraged Treasury basis trades, and threatened to turn a messy bout of Treasury liquidation into a cataclysmic financial crisis. 

Only Herculean efforts by the Federal Reserve — its balance sheet expanded by $1.6tn in just one month — prevented it.

What happened late on Friday and on Monday is nothing near what we saw in March 2020, when for over a week the US Treasury market — the bedrock for the entire global financial system — came close to breaking. But as our colleagues pointed out, the volatility has been high, and that they sold off so violently yesterday is highly suggestive of at least some levered Treasury trades getting forcibly liquidated:

Many regulators and policymakers have been worried about the Treasury basis trade ever since, not least because the Fed’s actions constituted a de facto bailout of the strategy. That the basis trade has since swelled to become far larger than it ever was before March 2020 has understandably increased those concerns even further.

Unfortunately, doing something forceful about it is difficult precisely because the basis trade has become such a major pillar of support for the Treasury market, at a time when the US government’s borrowing costs have already ballooned.

As Citadel’s Ken Griffin noted back in 2023 — when the SEC’s then-head Gary Gensler had the strategy in his crosshairs — killing Treasury basis trade would “increase the cost of issuing new debt, which will be borne by US taxpayers to the tune of billions or tens of billions of dollars a year”.

So far it doesn’t seem like any basis trade liquidation is having a major disruptive effect on the Treasury market. What was scary in 2020 was both how yields moved up when they should be moving down, and how trading gummed up completely in an asset class that nowadays often sees about $1tn of trading a day.

That doesn’t seem to happened so far, even if Treasury yields moving higher on risk-off days like today is a little disconcerting. However, Bloomberg’s index of Treasury market liquidity (caveats!) has been a little loopy lately, so this is one to keep an eye on.

Further reading:
— The debt-fuelled bet on US Treasuries that’s scaring regulators (FT)
— The hedge fund traders dominating a massive bet on bonds (Bloomberg)

Unlock the Editor’s Digest for free

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

You’ve consumed financial media (social, antisocial or otherwise) over the past day and a half, and you’ve encountered the phrase “Black Monday”.

Yesterday was, admittedly, a pretty wild time. But the S&P 500 closed pretty much flat, so everything must actually be fine.

Addicted to charting, we decided to raid Bloomberg’s historic open/high/low/close data for the S&P 500, and figure out just how “black” yesterday was on the Black Monday scales (we are already sure it was a Monday).

We didn’t just want to chart the day change; we also wanted to reflect some of the severe, start-of-week, intraday crapping-out that feels bad at the time but may not end up in the closing price.

So, for every Monday the S&P 500 has traded on since 1982* we compared the end-of-day loss with the maximum intraday trough, and scaled the dots based on the spread between the intraday peak and trough to capture a bit of swang. We’ve highlighted those days listed by veritable organ Wikipedia as a stock market Black Monday.

And, unsurprisingly, even with these tweaks there’s still only one real Black Monday from an S&P 500 perspective. Out in a zone of its own, 19 October 1987 remains a Monday like no other:

*
— Why does Wikipedia list the 16 September 2019 repo brouhaha as a Black Monday?
— For a smattering of days in the 1970s and early 1980s, Bloomberg lists the same price for open, high, low and close. We dunno what’s going on there, but that’s why our chart starts in 1982. Sourcing data remains hard.

Further listening:
— Cypress Hill’s Black Sunday

Bob McCauley is a non-resident senior fellow at Boston University’s Global Development Policy Center and associate of the faculty of history at the University of Oxford.

Kindleberger’s Trap is the danger that a fading hegemon lacks the ability but the ascendant one lacks the will to supply the world economy with vital public goods — such as a reserve currency. In the 1930s, the Bank of England lacked the ability to continue to serve as international lender of last resort, and the ascendant Federal Reserve lacked the will to do so.

As a result, crisis spread from Austria to Germany and Britain and ultimately reached the US, turning the post-1929 slump into an era-defining economic collapse. The Kindleberger Trap led to “the world in depression”, as Charles Kindleberger titled his seminal book.

This is why worries over whether the Federal Reserve will continue to supply dollars to overseas central banks at times of financial strife are such a big deal. As Reuters reported last month:

Some European central banking and supervisory officials are questioning whether they can still rely on the U.S. Federal Reserve to provide dollar funding in times of market stress, six people familiar with the matter said, casting some doubt over what has been a bedrock of financial stability.

The sources told Reuters they consider it highly unlikely the Fed would not honour its funding backstops — and the U.S. central bank itself has given no signals to suggest that.

But the European officials have held informal discussions about this possibility — which Reuters is reporting for the first time — because their trust in the United States government has been shaken by some of the Trump administration’s policies.

These concerns are warranted, both in light of the Trump administration’s distaste for America’s traditional alliances and the centrality of the Fed’s swap lines to global financial stability.

As Deutsche Bank’s chief FX strategist George Saravelos highlighted in a recent report on the topic, doubts over the Fed’s willingness or ability to step up when needed is a “nuclear button” for the dollar’s future:

Ultimately, a withdrawal of the Fed as the international lender of last resort is equivalent to a suspension of the dollar’s role as the safest of global currencies. Doubts about a commitment from the Fed to maintain dollar liquidity — especially against major allies — would accelerate efforts by other countries to reduce their dependence on the US financial system. It would ultimately lead to lower foreign ownership of US assets and a broad-based weakening of the dollar’s role in the global financial system.

In the 2008 and 2020 dollar panics, the Fed wisely told 14 central banks that the buck starts here. Through official swap lines the Fed could extend its credit to each central bank against domestic currency as collateral. Each central bank could in turn lend the dollars to banks in its market against domestic collateral.

Reaching outstandings as high as $598bn in 2008 and $449bn in 2020, the swaps succeeded in stabilising global dollar markets. The amounts were not small, but offshore dollar lending — both on- and off-balance sheet — is measured in the tens of trillions of dollars. Thus, with pennies on the dollar lent and repaid with interest, co-operating central banks calmed these potentially destructive dollar panics.

The US also won from the Fed’s international provision of dollars. Crucially, the swaps reversed market-driven interest rate hikes on Libor-priced US corporate loans and mortgages, which in turn would have hammered US jobs and consumption. As Saravelos pointed out:

Had the Fed not stepped in during the 2008/9 financial crisis and Covid pandemic, the reserves of foreign central banks and international lenders like the IMF would unlikely have been sufficient to meet global dollar demand, leading to an even greater surge in dollar borrowing costs than occurred at the time, defaults, and potentially systemic implications for the global financial system.

What if a crisis like 2008 or 2020 happens and the Fed does not swap dollars? Central bankers would not be doing their jobs if they weren’t asking this question.

If it came to such a scenario of “politicise[d] . . . recourse to the dollar swap lines,“ the Fed would have the ability but not the will, as in 1931. Any other single central bank might have the will but not the ability.

However, central bankers could form a dollar coalition of the willing.

The central fact is that the 14 central banks that had standing and temporary Fed swaps in 2008 and 2020 collectively hold lots of dollars. Their collective holdings of US safe assets amounted to an estimated $1.9tn at the end of 2021. (Their total foreign exchange reserves at the end of 2024 were about double that sum.) That $1.9tn is big money. It’s triple the previous maximum drawing on the Fed swap lines in 2008, and four times larger than the peak 2020 usage.

Leadership could arise among the Fed’s standing swap partners, the European Central Bank, Bank of Japan, Swiss National Bank, Bank of England, and Bank of Canada. The ECB and BoJ were the largest users of the Fed swap lines in 2008 and 2020, respectively. During the 2023 run on Credit Suisse, the SNB acquired unique experience in tapping the New York Fed for $60bn against US Treasury collateral under the FIMA (foreign and international monetary authorities) repo facility.

The coalition could enlist the Bank for International Settlements for technical support as agent as European central banks did in 1973-95. Or the BIS could serve as intermediary, as it did when the New York Fed lent dollars through the BIS to offshore banks in the 1960s to prevent funding crunches.

However, there is a major wrinkle: the $1.9tn is invested, and a crisis calls for cash dollars. In a world where the Federal Reserve refuses to allow access to its swap lines, would the New York Fed continue to provide same-day FIMA repo funding against Treasuries held in custody?

If it did, the coalition could arrange to access hundreds of billions of dollars in same-day funds. If the Fed did not, then it would end up providing ad hoc funding.

Without the FIMA backstop, heavy central bank sales of US Treasuries would rock the US bond market. Such selling could prod the Fed into the market as buyer of last resort — as in March 2020, before the FIMA repo was introduced.

Without the FIMA backstop, the Fed similarly would have to cap market repo rates if central banks sought to repo Treasuries for cash in size. However, the recent benchmark rate shift from dollar Libor to repo-based Sofer means that the Fed’s own domestic monetary transmission requires well-behaved repo rates.

One way or another, the coalition would need to work with the Fed to manage any “dash for cash.” Even a large pool of dollar reserves would not stack up to “whatever it takes” Fed swaps. Limits excite. It may be, as Eurosystem sources grimly noted to Reuters, that “there is no good substitute to the Fed.” 

Nonetheless, a dollar coalition of the willing could pool trillions of dollars to backstop global dollar funding with no more than self-interested Fed help. An inferior lender of last resort beats no lender of last resort.

It was that Monday again. Shifting a plate of half-eaten toast to the edge of the kitchen table, Zoë checked her list and started making calls.

They answered on the seventh ring.

“Hello, Travelodge Telford.”

“Hello,” said Zoë, slipping into the ‘work voice’ her housemates always teased her over. “I’m calling to inquire abo—”

“That time again is it?” the receptionist cut her off, in a voice that was neither cruel nor particularly cheerful.

“Time is absolutely flying,” said Zoë.

“Right,” he replied. “Well, we have a room tomorrow. One night with breakfast, £35.15. Do you want me to book that for you?”

“No,” said Zoë. “Of course I don’t.”

Swift justice

We made Zoë up. But her story could be true.

Every month, during the Monday of “index week”, agents of the Office for National Statistics like our fictional heroine are tasked with collecting a range of hotel prices.

Over the internet or via old-fashioned phone calls, they trawl hotels to discover the cost of one night in room with breakfast for Tuesday. The prices they observe will form a small part of the inflation basket, which will mostly be filled over that next day.

In the latest consumer price index figures, this “Hotel 1 Night Price” item was weighted at about 0.3 per cent of the overall basket — higher than water and wine, but behind vodka and pub meals.

Usually, it isn’t a big deal, but that changed last summer, around the same time a global obsession with pop star Taylor Swift led to the ‘Me!’ singer suddenly being credited with just about everything happening in the economy:

FT Alphaville wrote a couple of times last summer about how a jump in ONS-imputed hotel prices during June was likely not the work of Miss Americana.

Our crucial point, insofar as we had a point, was that even if Swift’s appearances did lead to hotel price gouging, that gouging would not have matter from a national statistics perspective unless her appearances coincided with ONS price collection days. Which they didn’t:

So if the ONS was missing Swift, what were they capturing? Well, as it turns out, there a large number of other musical acts who are also popular.

Missundaztood

Alecia Moore-Hart is probably not a household name in the UK, but her stage name, Pink (often styled as P!nk), certainly is.

The “Just Like A Pill” singer’s Summer Carnival tour ran for 97 shows, from summer 2023 to autumn of last year. According to Billboard, it was the second-highest-grossing tour by a female artist ever, landing ahead of Beyoncé’s Renaissance, and behind — you guessed it — Swift’s Eras.

Among a number of appearances across the British Isles, she appeared at Cardiff’s Principality Stadium on 11 June, bulls-eyeing the price collection day for that month:

If a hotel in Cardiff increased its prices on the night of the 11th in response to high demand linked to Pink’s appearance, there’s a possibility that could then feed into the UK’s inflation data.

Now, we can’t see specific figures for Cardiff, but the ONS’s price quote tables do show agents’ attempted observations for Wales as a whole. How many hotels did they canvass that June?

Four. Four hotels across Wales, a country of around 3 million people and home to, uh, the ONS.

Of those four hotels, two produced a price: one of £57 for the night, and one of £369. The other two got a T indicator, for “Temporarily out of stock” — in other words, the hotel was fully booked.

The £57 room’s price was flat on the previous reading, while the £369 room’s price had almost tripled:

You probably don’t have to be a sell-side economist to work out why that chart is bad. As of last June, Welsh hotels represented 5.67 per cent of the “Hotel 1 Night” item. Alongside some other individual surges in the South West and East Anglia, this hotel was probably a major driver of inflation in broader category.

This Pinkcident was brought to our attention Rob Wood from Pantheon Macroeconomics, who noticed it at the time and mentioned it to us while we were nagging him about video games last week.

It’s a clear example of how easily Hotel 1 Night Stay can be skewed, and then how that potentially feeds up to headline numbers.

The ‘no room at the inn’ issue

Like many works of fiction, our short story at the top of this article included an improbable event: Zoë managed to find a room.

It’s probably a little tricky to eyeball this from the chart above, so let’s specifically look at the number of valid Welsh hotel price quotes the ONS’s agents have been able to get each month since 2019. It’s, uh, horrible:

So, out of the seven hotels it has tried to get prices from since September 2019, the ONS have never successfully extracted a valid price from more than four.

Even if we ignore the lockdown-era disruption, the change in price has frequently been derived from a single hotel price, or none at all — as was the case in the most recent figures.

It doesn’t much imagine to guess why this might be happening: if you try to book a hotel room the day before you plan to arrive, you’re often going to find that they’re full. You’re also going to end up in a weird valley regarding dynamic pricing: sometimes, you’re begging for a gouging, while other times the hotel might be desperate to fill a room.

And it’s not just a problem in Wales:

And unlike with video games, there’s no major apparent shift in the style or amount of gathering going on here:

An ONS spokesperson told us:

The observation for the traditional overnight hotel accommodation is as described. The price is collected on the Monday of collection week for an overnight stay the following day. This can mean that some accommodation is fully booked and prices can be affected by short-term demand.

So what?

It isn’t good for the stats beneath the stats to be this bad. And unlike with an innocent small caged mammal, hotels are significant enough to sometimes matter a bit to overall CPI.

Not all items are alike. But, as we observed long ago, price collection rates (successful or not) are radically different for different items. Under ideal circumstances, you’d hope that the more important the item to overall, the more the ONS is trying to measure it.

Lol, nope:

Much to consider.

So what’s the solution? We already know the ONS is slowly attempting to make tweaks, most significantly by mass price gathering from sources like supermarket scanners.

Hotels don’t seem to be getting the big data treatment just yet, but, happily, a fix of sorts is in: we’d like to be among the first to congratulate the ONS on its new inflation spawn, HOTEL ADVANCE PRICE 1 NIGHT. We don’t appear to have price quotes for this beautiful new baby in a basket, added in February, but hope to see some soon.

An ONS spokesperson told us:

As part of the latest basket update, we have added an extra item to cover overnight hotel accommodation booked further in advance. This will result in additional quotes and should reduce the volatility in the series, aiding interpretation. We are also retaining the existing item so that late-booked accommodation is represented.

Huzzah! Still, our national statistics are going to occasionally going to be victim to strange circumstances. And we’re happy to give Pink long-overdue props for her part in that.

Further reading:
— The ONS vs the Xbox

Monday’s trading action was bizarre in many ways.

But one specific mystery — about a misleading headline that sent stocks ping-ponging all over the place — highlights just how fragmented and expensive access to breaking financial news can be, even at times when it really matters to retail investors.

The US stock market did indeed go bananas this morning, thanks to a headline that falsely* claimed White House adviser Kevin Hassett had said President Donald Trump was considering a 90-day pause in tariffs.

CNBC anchors read out the headline on air, as they tried to explain why markets had started to soar. In all, the S&P 500 rallied nearly 6 per cent from where it had been trading right before the mystery headline.

The White House said within the hour that no one knew about this supposed plan, a rare chance to properly use the term “Fake News”. Stocks sold off by the same amount they’d rallied, and then see-sawed around for a while. By mid-afternoon they were basically flat for the day.

So where exactly did the headline come from? That’s a much tougher question to answer than you’d think.

The obvious point of contagion was the Walter Bloomberg account, using the X handle @DeItaone (with a capital I instead of an “L”) which says it’s based in Switzerland.

This is not a guy named Walter Bloomberg, nor does he write for Bloomberg. The account’s entire deal is just reposting financial newswire headlines.

Here’s the post via a screengrab (since the account has since deleted the post). As you can see, it came at 10:13am, and really made the rounds within the next 30 minutes or so, thanks to the account’s ~848,000 followers:

By the way, all the times we’ll mention are EDT since the action happened during the New York trading day.

So did someone posting as “Walter Bloomberg” make up a headline to save the market? To cash out? Or just to introduce some chaos into the day?

If so, it’d be strange for the account to keep posting! But it has.

When asked by followers, the Walter Bloomberg account cited both Reuters and CNBC as the sources of the headline. Remember, though, the CNBC anchors seemed to be reading his post! One of his screengrabbed sources shows a Reuters newswire headline. But that was from 10:23am, and cites CNBC:

Now, it’s not great if CNBC flashed a headline because one of their anchors read a social-media post that turned out to be nonsense. In their defence, however, markets had already started to take off before they read it!

But is the lesson here really just that the @DeItaone account has massive influence?

Probably not! Things get weirder from here.

An account called Hammer Capital posted the same headline at 10:11am. That’s before the post from Walter Bloomberg, or CNBC, or any other sources we’ve found. Hammer Capital, who has been on X since March 2021, explained the headline thusly:

We’ve heard from few other sources now that trading desks started sending around that headline around at that time. We’ve contacted both accounts we’ve mentioned for additional comment.

Also, looking at the not-so-sophisticated trading data this writer has available at home, S&P 500 futures trading volume surged around then, before the Walter Bloomberg or Hammer Capital tweets were posted.

So . . . where did the banks get the headline?

As we said, the “Walter Bloomberg” account basically just copies financial breaking-news headlines from newswires. And the thing is, those wires often come with an extremely pricey subscription. If Hassett had done an exclusive interview about major US policy decisions — and he did not, probably* — only a major financial news service would’ve been able get that exclusive access.

The newswires don’t just offer one uniform news feed, either. While we aren’t 100% up to speed on the latest business models, some newswires have been known to deliver news feeds to different subscribers at different speeds. This is reasonable, to an extent, because not all professional subscribers can use the same level of access.

So it seems possible that some experimental headline-writing product (or a budget subscription) published a bad headline that was then picked up by the Walter Bloomberg account.

There’s one less-than-obvious analogue with reality, which could have been misinterpreted by an overzealous headline writer or (ahem) an LLM. In a Fox & Friends interview, National Economic Council director Kevin Hassett stalled by saying “yep” before saying “the President is going to decide what the President is going to decide.”

This was obviously not confirmation, because he then argued that observers are overreacting to the tariffs news.

Another problem with that explanation is that the interview happened nearly two hours before @DeItaone published the headline. And Hassett’s ‘Fox & Friends’ comments wouldn’t have explained the part about an exception for China. Reuters provided the following comment to FT Alphaville:

Reuters, drawing from a headline on CNBC, published a story on April 7 saying White House economic adviser Kevin Hassett had said that President Donald Trump was considering a 90-day tariff pause on all countries except China. The White House denied the report. Reuters has withdrawn the incorrect report and regrets its error.

So they’re pointing the finger at CNBC. But again, the network’s anchors seemed as confused as anyone else by the rally and the accompanying surge in trading volume when it first happened. (We’ve seen the video!)

And from CNBC:

As we were chasing the news of the market moves in real-time, we aired unconfirmed information in a banner. Our reporters quickly made a correction on air.

We’ll see what we can find out about where banks’ trading desks and broker chats saw the original headline.

Anyway, the market zigzagged all over the place after the morning ruckus, and closed basically flat. That’s presumably because some traders think the US President can be swayed by market reactions to fake news.

Or, as the @Quantian account puts it:

So we bounced 8% on a fake headline, sold off when people realized it was fake, and then bounced again when it occurred to people that if we bounced that much on a fake headline imagine how much we’d bounce on a hypothetical real one.

*The original headline’s accuracy could, of course, change entirely at any moment, at the whims of one man. How fun! Also an earlier version of this headline said Twitter instead of X. Whoops.