Hedge funds are piling in — and regulators are issuing warnings.
Over the last couple of months, there's been a range of renewed warnings about the growth in the size of this trade, known as the "Treasury cash-futures basis trade," or just "the basis trade."that the trade was back, noting that "sustained large exposures by hedge funds present a financial stability vulnerability."
Go to the futures market, and sell a contract to someone — usually to a large asset manager — who will pay you to deliver the same Treasury security in a few months at a priceYou pay $100 for a Treasury note, then deliver it to the futures market three months later for $100.50. Congrats, you made half a percentage point on the trade.
But if you only used $10 of your own money, that's a 5% return, rather than half a percentage point. Not bad.Unlike a mortgage, which can last 30 years in the U.S., the term for repo loans can be a single day. But once in a while, a giant shock appears that makes people question such assumptions — like a once-in-a-century global pandemic.When the realities of COVID hit the U.S. in early 2020, it sparked a worldwide rush to convert investments into cold hard cash.
Malaysia Latest News, Malaysia Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Here are Tuesday's biggest analyst calls: Apple, Nvidia, Amazon, Tesla, DraftKings, Meta, Monster & moreHere are the biggest calls on Wall Street on Tuesday.
Read more »
Wall Street climbs as bond selloff eases, earnings lift moodU.S. stocks rose on Tuesday as a selloff in U.S. Treasuries eased, while upbeat forecasts from Verizon, Coca-Cola and others boosted optimism about corporate America's health in the face of slowing economy and higher inflation.
Read more »
Wall Street climbs after profits at big companies top forecastsVerizon jumped 7% after saying it increased its number of broadband subscribers by 20% and earned more than analysts expected during the summer.
Read more »
Wall Street rises as upbeat earnings, forecasts lift sentimentWall Street rises as upbeat earnings, forecasts lift sentiment
Read more »
Wall Street Rises After Corporate Profits Top ForecastsWall Street is rising Tuesday after Verizon, General Electric and other big companies reported fatter profits for the summer than expected.
Read more »
One major Wall Street investment firm says some sugary drink brands will survive this health trendTrendy dieters are shedding pounds, but some sugary drink providers should avoid the weight loss fallout.
Read more »