My mate Ricardian Ambivalence has drilled into the detail of the odd price ramp in the SFE-listed 3 Year Government Bond Futures in the minute or so before the ABS released its unemployment data yesterday. I don't share his confidence for a few reasons.
First, extremely experienced traders--guys that have been watching this market for over 20 years--opined that the price action yesterday was 'very unusual'. Their immediate instinct was that there had been a leak.
Second, investment bankers have recently argued that there has been clearly dodgy trading immediately prior to big ABS data releases. This fits with what happened yesterday, although I agree with R.A. that ramping the market in the last 30 seconds is a seemingly silly thing to do. Whoever was responsible for the price action will presumably be shitting bricks: ASIC will probably be knocking on their door any time now.
Third, I count over 350 contracts traded in the 90 seconds before the data was released. The argument that because only 350-plus contracts traded in the last 90 seconds (or because 'only' $300k was invested), it could not possibly be 'meaningful' is weak for at least three reasons:
(1) first, and most importantly, the buyer can only buy contracts that are offered, and in the minute or so before a major number is released by the ABS, liquidity disappears beyond wide price extremes--nobody is prepared to hang bids and offers in the market in the event that there is a data shock;
(2) the reason I argued that this was 'decent volume' was because it was clearly not 'single-digit' lot attempts to search out hidden stops. This looked like a concerted effort to buy whatever was offered in the market up to fairly high prices (eg, 95.14);
(3) while the ABS data was 'bad', the unemployment rate, which is the key economic information in the release, did not change (ie, it printed at 4.9% again). The worrying signal in the data was the weak total employment result, and the downward revisions to the prior month's estimates. So, if you knew about it beforehand, this was never going to shift the market by 20 points, and you would not, therefore, have been seeking to buy large volumes at 'any price' (eg, > 95.20).
A final comment. It is widely accepted that two of the last three UK inflation prints have been leaked to the market, with massive volumes transacting in gilts at the open on the day of the release, and Chinese-style 'whisper numbers' correctly predicting the outcome. The first was when headline UK CPI printed well below market expectations at 4% a few months ago. The second was the upside surprise to both headline and core in the latest release.
I would not, therefore, blithely dismiss these risks. And, no matter which way you slice and dice it, $300k is a reasonable sum of money for any private investor.
