Fed Says Basis Trade Key Driver of Hedge Fund Treasury Exposure

Fed Says Basis Trade Key Driver of Hedge Fund Treasury Exposure Hedge funds’ growing exposure to Treasuries is primarily due to the revival of the cash-futures basis trade, according to the Federal Reserve. The highly leveraged trade now accounts for $830 billion of hedge funds’ Treasury long positioning as of September, about double its previous peak in early 2020, according to a report authored by principal economist Phillip Monin. That represents 35% of their total long Treasury exposure, which is dominated by arbitrage strategies including swap spreads and maturity-matched trades.