The British pound flash crashed this morning by more than 6% to trade at $1.17 before recovering to a $1.23 level.
That’s a huge move in currency markets, orders of magnitude from regular currency trading ranges. The crash down was on par with the move just after the Brexit vote results.
What creates the wild market moves in supposedly liquid assets? Forced selling? Broken algorithms?
The markets across most asset classes appear to be broken, but true price discovery cannot be attained due to central bank intervention, which pollutes the market reactions.
Yet we see continued selling pressure in US treasuries with muted results.
Stories abound on big sellers — Saudi Arabia, China and Japan — dumping treasuries, yet the move up in yields has been slight. Why?
There is obviously a big buyer in the market sopping up the excess, in order for yields to remain artificially low. I would venture its the New York Fed and its proxy buyers keeping a lid on rates.