Leverage funds are all in basis trades. Long cash treasuries short futures. Asset mangers are just long futures in their books. The leverage funds repo their cash Treasury positions daily overnight. Say the implied repo rate is 5.85% to be long cash short futures until the delivery date. The leverage funds are funding this position overnight at 5.40 so picking up 45bps risk free till delivery on BILLIONS. These trades have downside for sure but overtime the fed has always come to the rescue and bailed out the street with funding liquidity.
Hedge funds massive short exposure on U.S Treasuries
- Thread starter GordyG
- Start date
90% of my capital have bought 20-year bond. Do you think I need to hedge it with treasury futures?
you don't need to hedge, you have no expected risk exposure. the rate has topped according to powell. i'd suggest you sell fop calls or tlt calls, some pocket money to be picked up on the road side.
that’s the bet but i am waiting for a better entry price, after the cpi and rate decision in september. 5-10 zn carry trade.
when fed cuts rate, tlt will go up, then why should I sell tlt call? I am confused.
covered calls
After the big rise in Long dated treasuries in early 2020, do you think the huge spike up in yields on March 10, 2020 was mostly Covid related, which then turned into a liquidity problem?
Was it more of too few trading too much?
What are the chances of another spike up in yields?
Quote ;
"Treasury yields spiked during the initial phase of COVID. The 10-year yield increased by 64 bps from March 9 to 18, 2020, leading the Federal Reserve to purchase $1T of Treasuries in 2020Q1. Fed Treasury purchases were causal for reducing Treasury yields based on (1) the timing of purchases (which increased on March 19), (2) evidence against confounding factors, and (3) the timing of yield reversal and Fed purchases in the MBS market. Treasury-QE worked more via purchases than announcements. The yield spike was driven by liquidity needs of mutual funds, foreign official agencies, and hedge funds that were unaffected by the March 15, 2020 Treasury-QE announcement"
https://www.bis.org/publ/work966.htm
Was it more of too few trading too much?
What are the chances of another spike up in yields?
Quote ;
"Treasury yields spiked during the initial phase of COVID. The 10-year yield increased by 64 bps from March 9 to 18, 2020, leading the Federal Reserve to purchase $1T of Treasuries in 2020Q1. Fed Treasury purchases were causal for reducing Treasury yields based on (1) the timing of purchases (which increased on March 19), (2) evidence against confounding factors, and (3) the timing of yield reversal and Fed purchases in the MBS market. Treasury-QE worked more via purchases than announcements. The yield spike was driven by liquidity needs of mutual funds, foreign official agencies, and hedge funds that were unaffected by the March 15, 2020 Treasury-QE announcement"
https://www.bis.org/publ/work966.htm
Last edited:
look no further than april and to june this year, when cpi print is hot, yield spikes. qe has nothing to do with it.
All important CPI news release tomorrow.
My uninformed numpty opinion is that the U.S will point further towards deflation rather than inflation.
The S&P 500 rally over the last week also looks like a classic relief rally.