Posted 12/22/2023, 7:26:00 PM
Regulators Scrutinize Hedge Funds' Leveraged Treasury Trades Over Systemic Risk Worries
- The "basis trade" in Treasurys and Treasury futures aims to profit from tiny price differences by using leverage, drawing scrutiny
- The SEC is bolstering oversight, including requiring central clearing of repo transactions to reduce systemic risk
- In August, the Fed warned that hedge funds' leveraged Treasury trades needed monitoring and likely contributed to 2020 instability
- Regulators worry a rapid unwinding of basis trades could spark turmoil, but not all agree the risks are exaggerated
- Major hedge funds like Citadel, Tudor Investment Corp, and Balyasny Asset Management have traders known as top basis trade players