Fed economists sound alarm on hedge funds gaming US Treasuries

By Davide Barbuscia

NEW YORK (Reuters) – Researchers at the Federal Reserve have issued warnings in recent weeks about possible disruptions in U.S. Treasuries due to the return of a popular hedge fund trading strategy that exacerbated a crash in the world’s biggest bond market in 2020.

Hedge funds’ short positions in some Treasuries futures – contracts for the purchase and sale of bonds for future delivery – have recently hit record highs as part of so-called basis trades, which take advantage…