Friday, April 6, 2012

A Data Leak at the Bureau of Labor Statistics?

A friend emails:
Smells like insiders.
Marketwatch reports:
If you had known about the numbers that the Bureau of Labor Statistics was releasing Friday about employment, and wanted to bet on your information, there would have been no better place to turn than the PIMCO 25+ Year Zero-Coupon U.S. Treasury Index fund (ZROZ) the longest-duration Treasury ETF out there.

When the unemployment numbers were released and the market started worrying about what will happen next week, the yield on the benchmark 10-year Treasury note fell 13 basis points to 2.05%. Few funds would benefit from that move quite like the ZROZ.

Apparently, somebody or several somebodies made that bet.

The ZROZ traded 831,000 shares on Thursday, or roughly 25 times its average daily-trading volume. The fund only had moved more than 25,000 shares six times since the start of March, and never close to Thursday’s activity.

“With that much trading volume, nothing makes sense besides someone having inside information about what [the Bureau of Labor Statistics] was going to say,” said Michael S. Falk of Focus Consulting Group in Chicago. “If you had wanted to make that bet and it was not inside information given to you at the last minute, you would have averaged into it to avoid disrupting the bid-ask spread. … While you could make the same bet in the options market, it is more likely for the authorities to look for it or find it there.”

Of course, no one will ever prove anything. Whoever is behind the trades could simply pass it off as making a bet on domestic rates after seeing yields fall in Germany on Thursday. It’s sufficiently plausible that people — most importantly, regulators — will probably just ignore the ZROZ activity as an unusual blip.
In the old days, before the BLS realized that their data was market moving, I knew a money manager who hired a DC reporter to go to the BLS and get the data releases when they were handed out by the BLS. The data was handed out 5 to 15 minutes before it hit the news wires. The reporter would cross the street from the BLS and call the data in from DC's Union Station (this was pre-cell phone)to the money manager and the money manager would put on his bond positions.

This money manager also kept on retainer one of the most connected Wall Street law firms. Naively, at first, I never knew why he kept the firm on retainer. He never called them and they never did anything for him, but the sizable checks went out every month.

Then one day this money manager got caught red-handed with one of the "edges" he had created for himself. The CFTC swooped in on him and I thought for sure he was going to be in serious trouble---major fines for certain, mostly likely jail time. But he picked up his phone and called the law firm he had on retainer and one of the most impressive lawyers I have ever met came to the rescue. The lawyer met with the CFTC over what the lawyer classified a "misunderstanding". The lawyer so intimidated the CFTC staff that the they simply dropped the investigation (and there was plenty to investigate from a CFTC perspective.) Tied in ninja lawyers are amazing. This happened decades ago, but I still keep the lawyers number with me, now in my cell phine.


  1. Must be nice to have your own Tom Hagen.

  2. No see, this is impossible. The BLS is a government agency. Government agencies do not do these sorts of things. They are benevolent and pure.