ORLANDO, Florida, March 14 (Reuters) – Stability risks posed by ‘basis trade’ bets in the U.S. Treasury futures market are gradually receding but it is too early for the world’s leading financial authorities, many of whom highlighted the issue last year, to declare victory.
Market positioning data and recent research from Federal Reserve staffers, opens new tab and private sector analysts suggest that the value of these bets, mostly placed by hedge funds, has fallen by around 10-20% from the peak late last year.
But they are still large. And given the degree of leverage behind them – as high as 70x, according to Bank for International Settlements, opens new tab estimates – they still warrant close monitoring.
A simple, broad measure of the overall position is an aggregate of leveraged funds’ short position across two-, five- and 10-year Treasuries futures contracts as measured by weekly Commodity & Futures Trading Commission data.
The…
