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2026-05-28 00:15:10
Morgan Stanley says a popular US Treasury trading strategy favored by hedge funds is shrinking, reflecting a scarcity of profit opportunities. An analysis by Morgan Stanley shows that a popular US Treasury trading strategy that hedge funds have faced regulatory scrutiny is contracting. Strategists led by Eli P. Carter estimate that the size of US Treasury basis trading has fallen from a record high of $1.5 trillion earlier this year to $1.35 trillion. This type of trading aims to profit from small price discrepancies between US Treasuries and their corresponding futures contracts. The decline reflects a scarcity of price dislocations in the US Treasury market that create profit opportunities, thus suppressing relative value strategies. While these trades help provide liquidity to the market, they could threaten financial stability if hedge funds need to quickly liquidate positions during periods of market stress.
