>>20893037
>The hedge funds using massive leverage to buy the derivatives of treasuries (on both sides as less cash needed for futures) and short the futures and the difference in price can be a few pennies or it can be fractions of pennies but if you do it enough times you'll see how it starts to add up to a big profit if it goes your way.
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>However you need stable rates over the life of the bills (in this example) because you are borrowing on a short term basis. When those insurance companies, pension funds and asset managers actually buy straight up US Treasuries they go for the new ones and this is important because those are a lot more liquid than the futures/derivatives but also have a negative impact on value if sold en masse to EVERYONE who owns them and are nowhere near this trade.
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>Easy peasy for the hedge funds right? Not so fast as what happens when you have rates rise up (value of both bill and futures contract drop) dramatically? You get a crescendo of sales of both-the Bills AND the futures that were supposed to be held to maturity to realize the small gains so suddenly those have to be sold at losses. <
You HAD to write this part where it shows you as the alarmist who bit on someone else's hook and have NO IDEA how the Basis Trade works.
Yes, I'm ripping you for being an alarmist and dumbass. We have been through this before. Don't write about this again, as it doesn't matter whether or not you're using cash T-Bills, T-Notes, or T-Bonds (or Italian 10yr Notes, too) The basis is a HEDGED trade and requires lower margin minimums, depending o the Clearing Firm, and it is ALWAYS a leveraged trade, because Futures. Math only works on the inside. Been doin this for a very long time, Zoomie.