Hedge Fund Treasury Trade That Blew Up Attracts BOE Concern
- BOE sees risk in large short positions in US Treasury futures
- Deleveraging those positions risks financial instability
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A leveraged trade in US Treasury futures that has regained popularity with hedge funds poses a risk to global financial stability, according to the Bank of England.
Known as the basis trade, the strategy typically involves exploiting small price differences between cash bonds and futures, and is attracting scrutiny from US regulators. On Wednesday, the BOE added its voice, saying the risks associated with these trades have mostly not been tackled by regulators.