Whatever happens from here — where in this case that means even if bank contagion fears abate and the Fed is able to persist in the inflation fight — it’s too late for myriad unfortunate souls wrong-footed by one of the most dramatic US rates reversals in history.

Recall that the sudden blast of dovish repricing that accompanied the collapse of SVB was at the heart of the largest two-session drawdown+ for the CTA benchmark in the index’s history.

To call the reversal “stunning” would be to do it an injustice. Prior to the sudden, overnight onset of America’s regional banking crisis, US rates underwent a multi-week hawkish repricing, which made the subsequent about-face all the more astounding — and all the more painful for crowded shorts in STIRs and G10 bonds.

On Tuesday, Nomura’s Charlie McElligott underscored the point, calling STIR shorts “psychologically broken” after “the stop-out of their lives.” Insult to injury was a reversal of the reversal of the reversal (that’s three reversals) over the past several sessions, which Charlie called “just peak frustration.”

Remember: Riding shorts in the US rates complex was the driver of 2022 alpha for key investor cohorts, carbon-based and otherwise. Now, what was a trend has turned into a daily rollercoaster so violent you’d need a Zofran drip to suffer it.

“This 10 days of ‘banking crisis escalation = VaR shocks in crowded rates shorts = resetting global central bank policy paths from accelerated tightening to implied cuts’ daisy chain, rippled across all-asset volatility, with anything ‘trend / momentum’ — and nearly any strategy running  ‘short gamma’ — getting torched on explosive two-way overshoot price movement, from rates to equities to credit to FX to commodities, especially the metals complex,” McElligott wrote.

The figures above depict the largest cumulative four-session cross-asset trend momentum drawdown in at least 18 years.

So, call it just one more eight standard deviation event to add to a long list of such statistical “can’t happens” witnessed over the past 10 trading sessions.

Suffice to say the normal distribution is once again turning out to be an unreliable tool for managing risk. Who knew?

Charlie continued. “Running ‘short gamma’ in almost any asset was pure Sharpe destruction,” he said Tuesday.