A massive bond bet that backfired in April – and a senior Federal Reserve official said it likely caused the biggest surge in long-term Treasury yields since 1987.
Roberto Perli, who manages the Fed in a rough manner A $6 trillion securities portfolioOn Friday, the sudden rewind of popular trade, known as the swap spread trade, is likely to have exacerbated April’s liquidity crunch in the treasury.
The chaos began after President Donald Trump announced on April 2 that he had wiped out new tariffs. Initially, investors rushed to US government debt in a “flight to classic safety” trade. However, just a few days later, the long-term Treasury yields suddenly reversed. 30-year yield bx: tmubmusd30y rises almost 50 basis points in one week, The biggest jump since 1987.
“One factor that appears to have contributed to this extraordinary pattern is the rewinding of the so-called SWAP-SPREAD transactions,” said Perli, manager of the Systems Open Market Accounts at New York FED in a speech Friday.
Perli also pointed to reports that leveraged investors were caught off guard by sudden movements in the financial market.
Investors were piled up in the SWAP-SPREAD trade in early 2025, hoping that they would need to signal the arrival of promised deregulation, especially for the banking sector.
That trade backfired in April, exacerbating the disruption in the nearly $29 trillion financial market. As MarketWatch explained last month – Despite extensive reports of classical music at the time Financial market “Basic Transactions” It was part of the problem. In his remarks on Friday At a Fed meeting in Washington, Perli said there was no “evidence” for rewinding its underlying deal.
Instead, Perli reported that “many leveraged investors have come to benefit from the Treasury’s long maturity decline, compared to comparable maturity interest swaps, due to their expectations of relaxation of bank regulations that ease bank demand.”
