The "basis" tradeMy Comment: Doug Noland in his CreditBubbleBulletin has been warning about the amount of leverage in the UST market via the basis trade
Is LTCM Replaying Itself In US T-Bills? | ZeroHedge Excerpts:
“Moral hazard is today a greater issue than ever. The likes of Citadel and Jane Street have become too big to fail – and they operate as such. And to see them (and their use of leverage) expand so aggressively corroborates the “Terminal Phase” excess and speculative “melt-up” theses.” ~ Credit Bubble Bulletin, May 10th, 2024 One can only connect the dots for the growth of this trade. As people have been replaced by computers and “reduction in force” the players doing this basis trade have moved beyond just hedge funds and shadow banks. So, many small funds with billions of dollars seem to be placing the same low return, levered trade in the “safest security”.
Many of these smaller funds and banks (SIVB types) don’t have the expertise, but are just copycatting a “trade that works.”… until… it doesn’t. Until the “unexpected”.