Investors positioned for a steeper rates vol curve also came undone thanks to long-end dealer hedging flows and a sharp front-end move.

Firms that had bet on short-end rates rising and the curve flattening were caught out when the market moved sharply in the opposite direction following Trump's tariff reveal.

While the April 2 'Liberation Day' tariffs kicked off a storm in the US Treasury market, it also rocked Japanese yen interest rates and led to an estimated $1 billion of losses across banks and hedge funds.

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Here is the result of those conversations - 3,000 words on how a VaR shock triggered mass unwinds of leveraged Treasuries positions, hitting swap spreads trades and crushing market liquidity - and ultimately threatening the much larger basis trade and systemic risk issues.

Last week I happened to be in New York and had a front-row seat to the Treasuries meltdown. I had meetings scheduled with several senior rates traders at the large US banks, that still went ahead despite the chaos that was unfolding as the market lost its safe haven status.

Traders say EU bond liquidity has in-turn improved dramatically, though questions still remain around long-term issuance plans.

With correlations between European government bonds and interest rate swaps declining thanks to QT and year-end bank balance sheet pressures, hedge funds are turning to EU bonds as their preferred EGB hedge.

Changing the contracts is difficult, so companies are increasingly looking at proxy hedges to manage the risk (2/2).

Post-Covid, corporates are increasingly paying attention to their inflation exposures. But as they scour their supply contracts, many are finding they're linked to illiquid or unhedgeable inflation indexes. (1/2).

But their mixed performance in the August Vix spike has shone a light on whether they should be used in conjunction with vol targeting mechanisms - which cut exposure on a vol jump meaning funds can miss out on profits on the way back down.

Hedge funds are increasingly buying call options on short volatility QIS to get exposure to the difference between implied and realised equity vol with limited downside.

Hedge funds that had entered forward volatility agreements (FVAs) to lock-in cheap FX vol bets on the US election are reaping the rewards as vol jumps ahead of next week's event.

Dealers are increasingly using it as a way to reduce futures exposures, and in-turn limit basis risks from forwards hedges. It's also an increasingly reliable pricing reference for the FX swaps market.

Volumes on CME's FX Link have hit new highs, unlocking new use cases for market makers.

As more macro funds enter the strategy, traders say the momentum indicators become stronger and the trade becomes "self-fulfilling".

Hedge funds have ramped up momentum-based trading of Euro government bonds, raising fears among dealers that the trade is crowded and could amplify market moves on a sharp unwind.

Corporates have also looked at options-based strategies to limit negative carry, and tweaks to cross-currency swaps to reduce liquidity risks and XVA costs.

The changing interest rates differentials over the last couple of years has fuelled new interest in FX net investment hedging from corporates, say dealers. With G3 rates higher it's opened up more positive carry hedges and reduced costs on negative carry pairs.

Also new this morning: BNY says it will launch a 'done-away' cash Treasury and repo clearing service next year. On the repo side it plans to start with tri-party and move to bilateral soon after.