By Davide Barbuscia NEW YORK (Reuters) - Researchers at the Federal Reserve have issued warnings in recent weeks about possible disruptions in U.S.
STORY CONTINUES BELOW THESE SALTWIRE VIDEOSBy Davide Barbuscia
The trades - typically the domain of macro hedge funds with relative value strategies - consist of selling a futures contract, buying Treasuries deliverable into that contract with repurchase agreement funding, and delivering them at contract expiry. Separately, in a Sept. 8 note that looked among other things at hedge funds' Treasury exposures, Fed economists said there was a risk of a rapid unwind of basis trade positions in case of higher repo funding costs.
"The Fed is unlikely to view this accumulation of basis positions under too favorable a light and may eventually want to clamp down on them," said Steven Zeng, U.S. rates strategist at Deutsche Bank."However, the approach they take may not be straightforward as the Fed does not have direct regulatory oversight over hedge funds," he said.
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