Markets Are Starting to Play a Haunting Tune

Markets coverage over the last few days has been like playing “Financial Markets’ Greatest Hits – 2007-08.” Last week brought a huge momentum reversal and factor meltdown, just as the quants suffered in the summer of 2007. This week brought an epic spike in repo market rates in a replay of events that prompted the New York Fed to intervene twice back then for the first time in a decade.

It’s a rule of thumb that if you’re even talking about such geeky fare as long-short market-neutral strategies or overnight repurchase agreements, then something has already gone wrong. While these two events didn’t cause each other and happened in different markets to different people, it’s no coincidence that they happened at the same time. Both resulted from extreme conditions in bond markets.