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Thu Sep 14, 2023, 09:09 PM

Fed economists sound alarm on hedge funds gaming US Treasuries - Reuters

By Davide Barbuscia
September 13, 20239:41 AM PDTUpdated a day ago

NEW YORK, Sept 13 (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.

continued https://www.reuters.com/markets/us/fed-economists-sound-alarm-hedge-funds-gaming-us-treasuries-2023-09-13/

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Reply Fed economists sound alarm on hedge funds gaming US Treasuries - Reuters (Original post)
BootinUp Sep 14 OP
moniss Sep 14 #1
Recycle_Guru Sep 14 #2

Response to BootinUp (Original post)

Thu Sep 14, 2023, 09:44 PM

1. Treasury bonds

should be more protected since they are the financial underpinning of the country. There should be fewer of the "casino" and convoluted financial mechanisms applicable to US bonds. Let them go play with AMC and Gamestop but leave the financial foundation of the country alone. It never should have gotten this far.

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Response to moniss (Reply #1)

Thu Sep 14, 2023, 09:51 PM

2. I agree. I feel like when hedge fund folks are at a restaurant

and see a top on another table, they're trying to figure out how to make that money work for them too.

The casino gaming of our financial markets should be illegal after 2008 but of course...powerful wealthy are in power and make the rules.

Steal $500 from corner store, orison for years. Steal billions from investors and taxpayers, you get Ivy League buildings named after you.

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