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2026-09-21 22:26:15
Morgan Stanley strategists, including Eli Carter, say that basis trading in U.S. Treasury bonds and futures remains active and functioning well. They point out that while basis trading has changed in size, composition, and expected returns, it has not disappeared. From a duration-adjusted risk perspective, the trade has "virtually contracted." Total notional size has decreased from a peak of $1.5 trillion in January to approximately $1.2 trillion. The reduction in size is primarily concentrated at the front of the curve—specifically, TU (2-year) and FV (5-year) futures. In contrast, strategists say that WN (ultra-long-term) positions, representing the far end of the curve, have increased by 50% year-over-year. While concerns have arisen regarding increased dealer exposure as banking regulations have eased, and this exposure has indeed expanded, "the current shift remains moderate, and we believe it is unlikely to impose a substantial constraint on dealers' intermediary business."
