BREAKING: Hedge Funds Cut Treasury Basis Trades From $1.26T to $900B
Morgan Stanley estimates leveraged participation in the U.S. Treasury basis trade has fallen from $1.26 trillion at the start of 2026 to about $900 billion.
The strategy has shrunk to its smallest scale in more than two years as futures cash spreads and market dislocations narrow.
Citigroup and Morgan Stanley say the trade is not disappearing, but weaker relative value opportunities and lower volatility have reduced hedge fund activity.
The slowdown could also mean stronger than expected underlying demand for U.S. Treasuries as hedge funds provide less liquidity.
Morgan Stanley estimates leveraged participation in the U.S. Treasury basis trade has fallen from $1.26 trillion at the start of 2026 to about $900 billion.
The strategy has shrunk to its smallest scale in more than two years as futures cash spreads and market dislocations narrow.
Citigroup and Morgan Stanley say the trade is not disappearing, but weaker relative value opportunities and lower volatility have reduced hedge fund activity.
The slowdown could also mean stronger than expected underlying demand for U.S. Treasuries as hedge funds provide less liquidity.
