Awkward Pauses: Tariffs, Basis, Leverage

This episode explores the unexpected market reactions to the announcement of a 90-day pause on tariffs, focusing on the role of social media and the complexities of the treasury market. Against the backdrop of this news, the hosts discuss a fake Bloomberg headline that accurately predicted the tariff pause, highlighting the influence of social media on market behavior. More significantly, the conversation delves into the intricacies of the basis trade and swap spreads in the treasury market, explaining how these trades contribute to market volatility and the potential for hedge fund blow-ups. For instance, the hosts analyze the massive size of the basis trade and the lack of reported hedge fund liquidations despite significant market movements. As the discussion pivots to leveraged ETFs, the hosts analyze a specific ETF designed to profit from the volatility of leveraged ETFs, showcasing a unique trading strategy. Finally, the episode concludes with a discussion about the implications of these market events and the ongoing uncertainty surrounding future market movements.