Sir, Regarding “ Anatomy of a market meltdown” (Big Read, November 18). Bianco Research has detected at least four other events where the daily movement in the US Treasury market equalled or exceeded the October 15 move. They are October 20 1987, October 8 2008, March 18 2009 and August 11 2011. There were in addition larger moves in the 1980s when interest rates were around 14 per cent.
That amounts to five similar events in a 30-year history – an average of once every six years. This is the same rate at which Standard & Poor’s expects triple B-plus corporate bonds to default – rare but not uncommon.
More to the point, all but the last of those events took place before the US Treasury market was the subject of computerised algorithmic trading. While such trading may or may not have been the instrument this time around, the market has not lacked for ways to achieve violent moves without computers. As a survivor of the 1987 and 2008 events it is hard to rush to the judgment that October 15 2014 was due to computers or Dodd-Frank.
Correlation is not always causation.
Director, Master of Science in Financial Engineering Program,
University of Illinois, Champaign,
Urbana, IL, US
Get alerts on Letter when a new story is published