Hedge funds reduce Treasury basis trade
Hedge funds have scaled back leveraged Treasury basis trades by twenty percent this year amid shifting market conditions and softer demand. Lower profitability and regulatory changes have reduced relative value opportunities for traders.
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Hedge funds have pulled back from the Treasury basis trade, with capital locked in the leveraged strategy falling 20% this year to $1.2 trillion, according to MORGAN STANLEY. The decline follows a rise in United States interest-rate expectations and improved trading conditions that have squeezed profitability. The cooling activity marks a shift for a strategy historically blamed for amplifying market volatility through margin calls.
