Hedge fund surge in momentum EGB trading stirs unease
Dealers voice concerns that crowded positions could lead to liquidity squeezes following mass unwinds
The sharp rise of momentum-based trading in European government bonds (EGBs) by hedge funds is raising fears that a sudden unwind could lead to a liquidity squeeze and heighten market volatility, dealers say.
Hedge fund activity in electronic EGB trading has risen to 56% of volumes in 2023, up from 26% in 2018, according to data from Tradeweb. Changes in interest rates over the past two years, as well as the European Central Bank reducing its stock of bonds as part of its quantitative tightening
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