Relative value trades face Treasury clearing squeeze
SEC’s clearing proposals may hurt levered basis trades and worsen illiquidity in off-the-run bonds
The Treasury basis trade has become a go-to strategy for hedge funds looking to exploit pricing wrinkles in rates markets. The trade hinges on wafer-thin differences between cash bonds and Treasury futures.
Now, the arbitrage opportunity may be about to shrink even further.
A move by the US securities regulator to force firms to clear Treasuries has raised fears that relative value strategies
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