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Business News/ News / Treasuries Basis Trade Shows Signs of Waning, Deutsche Bank Says
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Treasuries Basis Trade Shows Signs of Waning, Deutsche Bank Says

Hedge fund interest in a popular trading strategy that’s meant to profit from price gaps between cash Treasuries and futures appears to be fading, according to Deutsche Bank AG.

Treasuries Basis Trade Shows Signs of Waning, Deutsche Bank SaysPremium
Treasuries Basis Trade Shows Signs of Waning, Deutsche Bank Says

(Bloomberg) -- Hedge fund interest in a popular trading strategy that’s meant to profit from price gaps between cash Treasuries and futures appears to be fading, according to Deutsche Bank AG.

Leveraged fund short positions in Treasury 2-year, 5-year and 10-year contracts have declined somewhat in recent weeks “suggesting a potential reduction in the Treasury basis" and relative value positions, Deutsche Bank strategists including Steven Zeng said in a note highlighting the latest positioning data released from the Commodity Futures Trading Commission.  

The observation follows wider-coverage of the leveraged risk behind the trade seen since the start of the year as Washington looks to force through a rigorous overhaul of the bond market. The process looks to include all repurchase agreement transactions — a key element to provide leverage in the basis trade.

The CFTC data released Friday shows that between Feb. 6 and Feb. 20, leveraged funds, which are typically hedge funds and various types of money managers, unwound their net short position in Treasury futures by around 500,000 10-year note equivalents. In the cash market, that equates to approximately $30 million per basis point move in risk terms.

Read more: Hedge Funds Continue to Cover Treasury Shorts in Futures: CFTC

Hedge funds are still massively positioned net short according to CFTC data up to Feb. 20, which showed an equivalent 10-year note futures position of roughly short 6.7 million contracts, compared to a peak short of approximately 7.2 million seen in January.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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Published: 27 Feb 2024, 12:31 AM IST
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