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154. Bond Market Chaos: Unpacking the Basis Trade Blowup Theory. Cause...or Convenient Excuse?
Send us Fan Mail There has been some speculation that the reason for "chaos in the bond markets" isn't loss of confidence in the US but rather the result of an unwind in "the basis trade" leading hedge funds to blow up and causing yield spreads to widen. To explore this theory we need to get super granular. We go deep into the relationship between cash bonds, futures, and interest rate swaps—and explain why so many market participants prefer the derivatives over buying Treasuries outright. We also walk through how structural leverage, repo financing, and margin exposure interact in this…
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