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Hedge funds shift into riskier swap spread trades as Treasury basis strategy stalls

Reported · Written up by our desk · Equity Funds

Hedge funds are increasingly shifting capital into swap spread arbitrage and other relative-value strategies as rising borrowing costs and regulatory changes reduce the appeal of the US Treasury basis trade, according to a report by Reuters. The cash-futures basis trade, which involves purchasing US Treasuries using borrowed funds while selling Treasury futures to exploit pricing differences, has plateaued after several years of rapid expansion. Higher Treasury yields, increased financing costs and greater bank capacity to hold government bonds have reduced arbitrage opportunities, prompting l

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