CH73

The bond prices, which had been plummeting relentlessly, stopped their sharp fall and showed a slight rebound due to expectations surrounding the CPI.

But that didn't last long.

As the announced CPI came in disappointingly, it immediately sent shockwaves through the bond market.

Although inflation had not yet occurred, the clear evidence that prices were rising and lifting their heads meant that the market's expectations for a rate freeze completely vanished.

With the hope that had been keeping the market afloat now shattered, a wave of panic selling erupted everywhere.

Mundale, too, stood at the trading desk, watching helplessly as his fund crumbled to nothing before his eyes.

"This... This can't be happening."

Since the sudden rate hike announcement, Mundale hadn't had a proper night's sleep, and his face had become haggard.

He tried to deny reality, staring at the monitor with bloodshot eyes, but even that was not allowed.

Jacob, the chief trader, stood next to him, his face drained of color, and urgently shouted.

"Not only U.S. Treasuries, but bond prices in Europe and Japan are crashing too!"

Snapping back to attention, Mundale saw that the bond market was turning into a bloodbath on his monitor and swore under his breath.

"Dammit!"

The accomplishments he had painstakingly built up were crumbling away like a sandcastle in an instant, so it was only natural that he felt this way.

As selling flooded in, there was no one to buy, and bond prices continued to plummet without any signs of stopping.

At that moment, the sound of phones ringing loudly, as if delivering a death sentence, echoed from all around.

Drrrrring! Drrrrring!

It was clear that the ringing phones were calls from banks, demanding additional margins due to the falling bond prices.

Determined not to collapse, Mundale clenched his lips and, with a nervous expression, shouted at his employees who were watching him.

"Sell! Sell all the bonds we hold!"

One of the traders weakly replied.

"We want to sell, but there are no buy orders."

Mundale glared fiercely at the trader who had answered and snapped.

"Then, even if we have to slash the price, sell everything while we still can!"

It was the last resort, but there was no other choice now.

To survive the fierce storm sweeping across the entire market, he had no option but to dispose of all the bonds he held, even at a loss.

***

At the same time, at the Quantum Fund office, 555 Madison Avenue, Manhattan, New York.

Rodney, the CIO, sitting in the prime seat on the office sofa, placed the printout of the recently announced CPI results down and spoke in a heavy voice.

"I had a bad feeling, and it's led to this result."

To his left, Ian, sitting on the other sofa, responded with a stiff face.

"As soon as the announcement came out, the 30-year U.S. Treasury yield jumped above 7%, and the bond market went into full panic."

"It was below 6% just until the end of the year, and now it's surged more than 1%. Anyone with a large position in bonds is probably being wiped out by now."

"It seems that margin calls for additional collateral are pouring in."

"It's obvious that bond prices will plunge further. Naturally, the investment banks that provided leverage are scrambling to secure more collateral."

The massive volume of securities being liquidated to raise additional collateral drove bond prices even lower, creating a vicious cycle where the falling value of collateral led investment banks to demand more margin.

"Soon, more and more firms will collapse under the pressure and go bankrupt."

Rodney, leaning back against the sofa's backrest, nodded slightly.

"Everyone maxed out their leverage to maximize profits. Weak players will start falling like dominoes."

The thought seemed dreadful, and Ian, with a stern face, responded.

"Couldn't this escalate into a financial crisis?"

This wasn't just a problem with one or two overleveraged funds; Wall Street as a whole was sitting on enormous leverage, so the possibility of this turning into a larger issue was very real.

If that happened, it would undoubtedly be far more massive and destructive than the savings and loan crisis from a few years ago.

"For now, the bond market will be a complete mess, but I don't think it'll escalate into the worst-case scenario."

With a confident attitude, Ian leaned forward and asked,

"Do you think the Fed will step in and stop it?"

"This was triggered by poor judgment due to overly complacent views of the situation. The Fed will try to contain the fallout if only to avoid blame."

Ian nodded in agreement.

"Now that you mention it, you're right. If they leave it as is, they'll take the blame for causing a financial crisis."

The situation, which was unfolding in a completely unexpected way, must have been greatly alarming to Chairman Monroe and other Federal Reserve officials by now.

"Those fools."

The market, which moved like a living creature, was something the Fed clearly hadn't understood properly, and Rodney couldn't help but feel a cynical disdain for their catastrophic blunder.

"The White House won't want things to escalate either. They'll definitely come up with some kind of action."

"Well, if things get any worse, they'll have to give up on the midterm elections a few months from now."

"That said, they won't be able to bail everyone out. They'll selectively protect investment banks and insurance companies."

Insurance companies, for their part, had invested a significant portion of their funds in bonds to maintain stable operations.

Naturally, if bond prices suddenly plummeted as they had now, the losses would fall squarely on them.

"So, what about the funds...?"

Receiving the gaze, Rodney responded in a cold voice.

"Something has happened, so there needs to be somewhere to shift the blame."

The meaning behind those words was clear.

Ian swallowed nervously and cautiously asked,

"You're saying they'll use the funds as a scapegoat?"

Rodney shrugged.

"Do you think the noble folks at the White House and the Fed will willingly admit their own mistakes? Not a chance."

In order to win the midterm elections, they would need to deflect the blame elsewhere, no matter what.

"They've already sinned by excessively inflating leverage for profits, so the funds are perfect to use as scapegoats."

"Looks like the funds will have to be sacrificed to avoid responsibility."

Ian nodded, and Rodney predicted the ominous future that was about to unfold.

"For a while, Wall Street will be thick with the smell of blood."

Ian's expression darkened upon hearing the remark.

The Quantum Fund had also invested in bonds, and this crisis had caused significant losses.

However, after hearing that the Eldorado Fund had sold all its bonds and even taken short positions, Rodney, sensing something ominous, drastically reduced his positions, minimizing the damage.

Reflecting on that, Rodney spoke.

"I didn't think it would happen, but once again, the Eldorado Fund's bet was right."

"Yeah, really. If they set the stage for this, knowing something like this would happen, that's impressive."

Rodney's thoughts turned to Seok-won's face from their last meeting, and his eyes gleamed as he muttered quietly.

"He's no ordinary individual, that's for sure."

***

New York Plaza Hotel Penthouse.

Dressed in comfortable sweatpants and a shirt, Seok-won sat at a round table in front of the floor-to-ceiling windows of the balcony, having dinner with Landon, ordered through room service.

"I heard that last night, the president of the New York Fed personally called Wall Street investment banks and barely managed to prevent the bankruptcy of Strust Bank."

Seok-won cut into his well-cooked steak and calmly responded.

"If a bank went bankrupt in this fragile situation, it would've been impossible to manage."

"That's right. The credit crunch is already severe, and if Strust Bank had shut down, it would have led to a chain bankruptcy of banks and insurance companies."

Seok-won picked up his wine glass and took a sip, then looked at Landon, sitting across from him.

"How's the situation with the funds?"

Landon shook his head in disbelief.

"It's a complete disaster over there. From what I hear, numerous funds have already lost more than 30% of their capital. If bond prices drop further, we'll see a wave of bankruptcies from funds unable to withstand margin calls."

Just hearing about the dire situation of the funds made it clear how serious things were, but Seok-won, who had anticipated this outcome, remained calm.

"Greed always brings trouble."

Seeing Seok-won's composed demeanour, Landon asked the question that had been lingering in his mind.

"When I checked earlier, the 2-year U.S. Treasury yield had risen by 10 basis points from the day before. When do you plan to exit your positions?"

Having eaten enough, Seok-won wiped his mouth with a napkin and responded calmly.

"Once the March FOMC results come out in a few days, bond prices will likely take another hit. For now, I'll leave things as they are."

Landon put down his fork and asked,

"Given the chaos, do you really think the Fed will go ahead with another rate hike?"

Without any hesitation, Seok-won nodded.

"If they had done nothing at all, that might be one thing. But after already pressing the accelerator, stopping the car now is not an easy decision."

"..."

"Moreover, the recent CPI results confirmed that inflation concerns are real. So, from the Fed's perspective, they probably have no other choice."

Landon, who had been reflecting on Seok-won's words, nodded.

"Well, since the damage is already done, instead of trying to fix things with another risky move, they might seize this opportunity to definitively burst the bubble."

"The financial market is exactly that—bubbles inflate and burst, and within no time, a new bubble forms. This has been repeating for decades."

"True."

Seok-won's voice was calm yet had a natural power to it that made it easy to focus and listen intently.

Landon, too, had straightened his back and was listening attentively.

"The Fed is aware that the bond situation is serious. They'll likely raise rates by just 0.25% to minimize the shock. At the same time, they'll protect the investment banks and insurance companies, which would have the biggest ripple effects if they went bankrupt."

Landon's eyes lit up, and he leaned forward slightly.

"So, if we pick up stocks from the investment banks and insurance companies, which are trading at a significant loss right now, we could make a good profit."

Seeing that Landon was starting to understand the market, Seok-won smiled slightly.

"You've got it. When it seems like we've reached rock bottom, we'll be ready to scoop up the shares of investment banks and insurance companies."

Landon rubbed his hands together in anticipation, his excitement barely contained.

"I can already feel the big profits we'll make from this."

Seok-won, who had been leisurely swirling his wine glass, brought it to his lips with a faint smile.

"Oh, right."

Just then, Landon, recalling one more item to report, spoke.

"I've completed the Yen position liquidation."

"Really? How much did we make?"

As he set his wine glass down and asked, Landon grinned broadly, clearly pleased with himself.

"After all the fees, we made a profit of $670 million."

Upon hearing the amount, Seok-won raised one corner of his mouth in a slight smile.

"Not bad at all."

"As you predicted, when the yen was about to break the 100 mark, the Japanese banks and government immediately intervened."

Seok-won responded as if it were obvious.

"There's no way the yen could have stayed strong beyond that point. It wouldn't have been good for anyone."

Landon looked at him with admiration, as if impressed by his calm demeanour, and said,

"In the end, we ended up liquidating the position right at the peak. Ha, it's almost as if you saw the future, didn't you?"

Landon chuckled, making a joke.

But while his laughter was lighthearted, Seok-won, feeling a slight sting on the inside, showed no sign of discomfort on his face, offering only a faint smile.

Just then, the phone on the table rang. Seok-won excused himself briefly and answered the call.

"Hello?"

[It's me, Tom. Sorry for the sudden contact, but can you come over here as soon as possible?]

Hearing Tom Harper's voice, clearly flustered, Seok-won narrowed his eyes.

"What's going on? Is something wrong?"

[Well... we might have to shut down the company.]

"...What?"