With the Fed planning to wind down its buying of Treasuries by March and possibly to start shedding its holdings by attrition later this year, arbitrage opportunities may be set to return, Citigroup Inc. strategists Raghav Datla and Jason Williams said in a note late Friday.
The policy shift “should remove the dampening effect that Fed purchases had on the futures net-basis” and yield relationships between older and new Treasuries, they wrote. Also, financing rates for Treasuries should rise “and drive more dislocations in cash/futures markets.”
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