A Mystery in 10-Year Treasuries Has Links to Carry Trade Blowup
- Popular Treasury basis trade may have reversed this year
- Hedge funds built up long positions in ultra 10-year futures
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Hedge funds are snapping up 10-year Treasury futures, and no other maturity, presenting a puzzle. The answer may lie in the collapse of a popular carry trade last year.
The highly-leveraged basis trade involved going long cash bonds and selling futures, to profit from the difference between the two, but came asunder in March 2020 when investors stampeded to buy the latter at the peak of coronavirus fears and upended the spread. Now the gap -- the so-called gross basis -- has reversed and favors shorting cash bonds and buying futures.