The beginning of April has been a volatile trading month with the S&P 500 down -9.3%, the Nasdaq down -9.9% and Russell 3000 down -9.5%. Total short interest in the market, both equity and ETFs, declined by $114 billion, wrote S3 Partners.
“The $114 billion decline of total short interest was made up of $46 billion of new short selling which was more than offset by a $160 billion decline in the mark-to-market value of shares shorted, The industry groups with the largest amount of increased short selling were Index Funds & ETFs, Financial Services, Capital Goods and Software & Services,” according to S3.
Finadium’s new Deriv1.com datahub for US Treasury repo shows that the cost to repo under one year US Treasuries yesterday fell to 4.15%, about 20 bps lower than other UST issues. This indicates an expected decline in very short-term interest rates and can be hedge funds expecting the Fed to cut rates while UST short term purchases are being bought and not lent.
Jo Burnham, margin expert at OpenGamma, said in emailed commentary: “When there are periods of volatility and significant price swings across markets, typically it results in corresponding changes from a collateral perspective, pushing margin rates up and margin calls higher. Without proper forecasting, this can lead to a lack of predictability over margin requirements, leaving market participants vulnerable to unexpected liquidity pressures. As margin requirements change, it’s increasingly critical to optimise the way calls are funded, ensuring operational flexibility. In these volatile conditions, liquidity management must be top of mind, and those who can forecast and optimise their margin strategies will be best positioned to navigate this uncertain environment.”
Sylvain Thieullent, CEO of Horizon Trading Solutions, said in emailed commentary: “When trade tensions rise, so does trading volume — and so called Liberation Day was a clear reminder that uncertainty drives volatility. Naturally, there has been a surge in hedging and repositioning activity across markets, with traders trying to react as quickly as possible to this policy uncertainty. Every spilt-second decision really does count right now, which is why the connection between a bank’s trading system to an exchange needs to be as seamless as possible.”