Jo Burnham, Risk and Margining subject matter expert at OpenGamma, said in a statement:
“Institutional investor betting on yield spread fluctuations between US treasuries to make a fast buck have faced ballooning margin costs this year. The margin for one lot of 2-year listed treasury futures surged from $330 in November 2020 to a staggering $1,265 as of November 20 2023, reflecting an alarming 283% increase.
“Similarly, the margin for 10-year treasury futures witnessed a significant uptick, rising from $1,540 to $2,200 in the same time period, representing a significant 42% increase.
“This is likely to compound a desire to hold cash in moving into 2024, which could affect the funding costs that face institutional investors looking to engage in the treasury basis trade, which involves taking positions in debt markets that seek to profit from changes in yield spreads between US treasuries and interest rate futures.
“Heading into the New Year, institutional investors face a more complex landscape as they navigate the trade-off between holding cash and using securities in a market characterized by higher interest rates. As the margin costs for treasury futures continue to rise, traders will likely seek new ways to adapt their approach to maintain profitability in an environment marked by shifting monetary policy dynamics.”