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Hedge Fund Basis Trade Draws Fresh US Scrutiny Amid Debt Saga – Bloomberg
(Updated – May 26, 2023 7:48 AM EDT)
A highly levered bond trade popular with hedge funds is drawing renewed scrutiny from officials at the SEC and Federal Reserve, according to Bloomberg, citing people familiar with the matter.
The so-called basis trade involves borrowing heavily in the repurchase market and using that leverage to exploit the price gap between Treasury futures and the underlying cash market. The trades in some cases have been levered 50-to-1.
Hege funds that have pursued the strategy in the past include Citadel, Millennium Management, ExodusPoint Capital, and Capula Investment management, the report said.
Dangers are heightening due to issues surrounding the debt ceiling.
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