Bloomberg: Before Fed Acted, Leverage Burned Hedge Funds in Treasury Trade

When coronavirus panic kicked off unprecedented turmoil in Treasuries last week, hedge fund leverage was lurking. The firms use borrowed money from the repurchase market for the popular basis trade, which exploits price differences between cash Treasuries and futures.

Leveraged funds’ exposure to the basis strategy could be as much as $650 billion, JPMorgan Chase & Co. strategists said.

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