Dodging a steamroller: how the basis trade survived the tariff tantrum

Higher margins, rising yields and stable repo funding helped avert another disruptive blow-up

When US Treasuries began selling off sharply in early April, some in the markets – and the financial press – could be forgiven for having flashbacks to 2020, when a rapid unwinding of basis trades almost caused a broader market collapse.

While rumours of large losses at leveraged fixed income hedge funds swept the market, dealers that finance the basis trade saw few signs of a repeat of the panic that marked the onset of the Covid-19 pandemic five years ago.

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