Premium'Instability & Illiquidity' Looms For Treasury Market As Credit-Cycle Turns
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Authored by Simon White, Bloomberg macro strategist,
A deterioration in credit markets, anticipated by a rise in bankruptcy filings, could trigger a hedge-fund unwind of the large bond-futures basis trade, leading to instability and illiquidity in the Treasury market and beyond.
Nothing exists in a vacuum, and nowhere is that more true than in markets. Instability across assets could arise from a symbiotic relationship that has developed between bond managers, hedge funds and Treasury futures, with credit a potential catalyst.