> A particular worry in the Treasury market is that a doom loop could arise from the “basis trade”. This is popular with hedge funds and has minted fortunes at

> A particular worry in the Treasury market is that a doom loop could arise from the “basis trade”. This is popular with hedge funds and has minted fortunes at some of America’s largest. It attempts to profit from the difference in price between Treasury bonds and Treasury futures contracts, caused by high demand for the futures from asset managers. Traders exploit this by buying Treasuries and selling futures contracts. To amplify the returns, they borrow using the Treasuries they have bought as collateral, then recycle the cash into even more Treasuries. Thanks to this procedure, hedge funds are short some $1trn-worth of Treasury futures. Every few years some dumb shit like this blows up and then the "experts" hem and haw about why reform actually can never be done and "we MUST keep gambling with instruments you see!" it's just so transparently stupid at this point.