What if a leveraged Treasury basis-trade unwind sparks a flash crash?
A basis-trade unwind dumps cash Treasuries as hedge funds are forced out of the long-bond/short-futures leg, spiking repo and dragging equities via vol-target deleveraging; trade is long vol / short Nasdaq into the liquidation. Closest analogue is the March 2020 Treasury 'dash for cash' when 10y yields backed up despite a risk-off tape. Forward angle: leverage in the trade is larger now (~$1tn+ notional), and a Fed SRF backstop exists, so the crash may be sharper but shorter than 2020.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 1–3 years horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. A leveraged Treasury basis-trade unwind causes a Treasury flash crash. The trigger decomposes into signed root‑shocks — Volatility (VIX) ▲ · Credit spreads ▲ — which propagate through our causal graph to the markets below.