US Bond Flash Crash One Year On: What Have We Learned?

Twelve months have passed since the nerve-shredding “flash crash” in US Treasurys and the financial industry is pushing though initiatives aimed at improving stability and liquidity in global fixed income markets.

On October 15, 2014 traders and investors were left reeling after the yield, which moves inversely with a bond’s price, on the 10-year US Treasury plunged 33 basis points to 1.86 percent before rising to settle at 2.13 percent – seven standard deviations away from its intraday norm. U.S Treasurys are seen across the globe as a safe haven for investors, so any wild fluctuations have massive ramifications for the financial community — and how the US raises money.

The rollercoaster ride was enough to spook leading global policymaking and regulatory bodies into reinforcing liquidity management and examine how the asset management industry has affected the fixed-income market.

Indeed, the International Monetary Fund in its September report warned that “changes in market structures—including growing bond holdings by mutual funds and a higher concentration of holdings—appear to have increased the fragility of liquidity.”

The report highlighted two aspects of the asset management industry that were of particular concern: The increased tendency for mutual and hedge funds to follow benchmark-style investing – which encourages the buying of the same securities across the industry – and the ability for many investors to redeem their capital on a daily basis.

Regulators face the challenge of creating a stable infrastructure without dismantling the ability of asset managers to do their job. National authorities have also had to balance adhering to global stability measures with protecting what is a highly valuable industry for many economies — including the UK.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.