Fed economists sound alarm on hedge funds gaming US Treasuries

[Eugene]

Source: Reuters

Fed economists sound alarm on hedge funds gaming US Treasuries

Davide Barbuscia
Wed, September 13, 2023 at 10:59 AM EDT·3 min read

NEW YORK (Reuters) - Researchers at the Federal Reserve have issued warnings in recent weeks about possible disruptions in U.S. Treasuries due to the return of a popular hedge fund trading strategy that exacerbated a crash in the world's biggest bond market in 2020.

Hedge funds' short positions in some Treasuries futures - contracts for the purchase and sale of bonds for future delivery - have recently hit record highs as part of so-called basis trades, which take advantage of the premium of futures contracts over the price of the underlying bonds, analysts have said.

The trades - typically the domain of macro hedge funds with relative value strategies - consist of selling a futures contract, buying Treasuries deliverable into that contract with repurchase agreement (repo) funding, and delivering them at contract expiry.

In two separate notes in recent weeks, economists at the Fed have highlighted potential financial vulnerability risks related to these trades, which are taking place at a time of volatility in the U.S. government bond market due to higher interest rates and uncertainty over future monetary policy actions.

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Read more: https://news.yahoo.com/fed-economists-sound-alarm-hedge-145915191.html

[mahatmakanejeeves]

1. This went right over my head.

I bought some Treasury bills last week. The real thing, i.e., not the options, but the bills themselves. I bought the same way I also do, on a non-competitive basis.

Once you get past that, I'm out of the picture.

Thanks for the thread, and good afternoon.

[Fullduplexxx]

2. hard to be alarmed over something i dont understand

but my guess is that what willbe said about it is nothing can or will be done to stop it , whatever it is that is so alarming

[Warpy]

3. Because as long as they stuck to gaming the stock market, it was OK?

The alarm bells over those SOBs has been sounding for decades now.

[Midnight Writer]

4. It's OK. We'll bail them out, if they are rich enough and do enough damage.