Bond Investors Threaten Popular Hedge-Fund Bet on Swap Spreads

A surge in long-term bond yields is once again threatening to upend a crowded hedge-fund bet that Treasuries will perform better than interest-rate swaps.

The trade is at risk of falling apart as borrowing costs for the world’s biggest economies soar, diminishing the returns in US government debt against the swaps. That’s a problem for hedge funds and other traders who piled into the bet in recent weeks, as well as the chorus of Wall Street strategists who’ve been recommending it.