‘Worse than Lehman’: Wall Street’s rout triggers some GFC memories

Since a surprisingly hot inflation report on Friday, investors have become increasingly worried that the Fed will have to tighten monetary policy so aggressively that it tips the economy into a recession. Economists at JPMorgan Chase & Co, Goldman Sachs and Nomura Holdings Monday joined their peers at Barclays and Jefferies to call for the central bank to announce a 75-basis-point hike on Wednesday, which would be the biggest increase since 1994.

Instead of serving as a haven in times like this, the Treasury market and its huge spike in yields has become a catalyst for the market-wide plunge. It reminded Priya Misra of former President Bill Clinton’s political adviser, James Carville, who famously observed that he’d like to be reincarnated as the bond market given how intimidating it is.

“It was quite the day. Like a freight train approaching and you can’t turn anywhere for help,” said Misra, global head of rates strategy at TD Securities. “Today the bond market was present in all ferociousness!”

Subadra Rajappa, head of US rates strategy at Societe Generale, said poor liquidity, some “panic selling” and margin calls contributed to Monday’s rout. But even that couldn’t fully explain the market moves, she said.

Rajappa spent all day fielding calls from clients and scuttled between internal virtual meetings while working from home in Manhattan. A few clients were scratching their heads trying to figure out why the markets have sold off so much.

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“People are trying to process what’s behind these large moves,” said Rajappa. “We don’t know for sure.”

Bloomberg

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