Someone dropped a bomb on the bond market Thursday – a $1 billion Armageddon trade betting the United States will lose its AAA credit rating.

In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world.

The massive trade wasn't placed in bonds themselves; it was placed in the futures market.

The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01.

The value of the trade was about $850 million dollars. In simple terms, if that was a direct bond buy, no one would be talking about it.

However, with the use of futures, you have to have margin capacity behind the trade. That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.

You only do this if you see an edge.

This means someone is confident that the United States is either going to default or is going to lose its AAA rating. That someone is willing to bet the proverbial farm that U.S. interest rates will be going up.

I believe what happened is a debt-ceiling deal was done in Washington and leaked to a major proprietary trader. Everyone knows the debt negotiations in Washington have been an extreme game of brinksmanship between political parties, but now someone knows how that game played out.

This had the hallmarks of one of the largest bond shops in the world knowing something the rest of the market didn't.

The number of shops or even central banks that can take on this level of market risk is extremely small. Some that come to mind are hedge fund manager John Paulson, Bill Gross's PIMCO, and the U.S. and Chinese central banks.

Paulson already scored big – about $6 billion big – on a similar trade years ago when he bet against subprime mortgages, the investments that helped bring down Lehman Bros. and many other investors.

Whoever was behind it wanted a trade on ASAP, and didn't care about the ripples they would cause.

Armageddon trade

You can see how this trade caused fear to be unleashed in the market once it got out and the implications hit by looking at U.S. Treasuries. People who were long 30-year Treasuries panicked as they saw the huge short put on the futures market, and started to unwind their long exposure.

What you, as investors, should do now is look at the bond exchange-traded funds (ETFs) that provide a positive rate of return when U.S. Treasuries drop in value. Yields are going up sooner rather than later, if the person behind this Armageddon trade is correct.

Google Inc will finance $280 million of residential solar power systems through a deal with startup SolarCity that is the Internet search giant's largest single clean energy investment to date.

The fund will enable thousands of homeowners who do not want to make a large upfront investment in a solar system to have solar panels installed on their roofs as part of SolarCity's leasing program, the companies said on Tuesday.

SolarCity's solar lease program enables its customers to pay a monthly fee for solar panels rather than a large up-front installation price. That monthly fee is often offset by the customer's savings on electric utility bills.

Google will own the systems, and will earn a higher return than what it would earn if the cash had been sitting in the bank, SolarCity Chief Executive Lyndon Rive said, though he declined to be specific.

Through the deal with Google, Rive said he hopes other corporations will come to see financing solar systems as a good use of their cash.

"It's been mainly banks that have focused on this, and what that has done is it hasn't broadened the market," Rive said in an interview. "With Google getting into this ... hopefully it will show other corporate companies that this is a smart investment."

San Mateo, California-based SolarCity recently bought groSolar, a solar power project developer and distributor, expanding its reach into 10 states. The company is privately held.

Google said in late 2007 that it would invest hundreds of millions of dollars in solar, wind and geothermal technologies to help make renewables cost competitive with coal.

The deal with SolarCity brings Google's total investments into clean technology to $680 million.

Billionaire Masayoshi Son has a track record in taking on monopolies after building a business that opened up the nation’s telecommunications industry. Now he aims to shake up Japan’s power utilities after the worst nuclear crisis in 25 years.

Son, the 53-year-old chief executive officer of Softbank Corp. (9984), plans to build solar farms to generate electricity with support from at least 33 of Japan’s 47 prefectures. In return, he’s asking for access to transmission networks owned by the 10 regional utilities and an agreement they buy his electricity.

...

Tokyo-based Softbank plans to set up an affiliate that will use some of the company’s 3 trillion yen annual revenue to build solar power stations, Son said at a May 26 conference. One option would be to raise funds to invest about 80 billion yen into building 10 solar farms, each with about 20 megawatts of capacity, said Softbank spokeswoman Makiko Ariyama.
Solar Capacity

The combined 200 megawatts of power capacity will provide more than 10 times the 19 megawatts in total produced at eight photovoltaic power stations run in Japan by the regional utilities as of June 9. Japan produced 988 terrawatt hours of electricity in the year ended March 31.

Prime Minister Kan pledged to generate 20 percent of the nation’s electricity through renewable sources by the 2020s as the nation rewrites its energy blueprint.

“We will do everything we can to make renewable energy our base form of power, overcoming hurdles of technology and cost,” Kan said in a speech in Paris before the Group of Eight summit last month. Japan aims to cut the cost of solar power generation to one-third current levels by 2020 and one-sixth in 2030 and will install roof-top solar panels at 10 million homes, Kan said.

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