The huge leverage that hedge funds are employing as part of the so-called basis trade

The world’s most influential regulators are intensifying their scrutiny of a mounting potential risk to  the $25tn US government bond market.

 The so-called basis trade involves playing two very similar debt prices against each other — selling futures and buying bonds — and extracting gains from the small gap between the two using borrowed money.

Such risks matter because the US Treasury market underpins the global financial system.

FT 26 September 2023


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