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Martin Pelletier & Joseph Wang on Stock Market Concentration, Cash-Futures Treasury Basis Trade, Structured Products, and New York Community Bank
Forward Guidance
Understanding Treasury Issuance and Debt Buyers
The US is issuing a significant amount of treasuries due to a forecasted deficit of 1.6 trillion this year, raising questions on who will buy the debt. Hedge funds are the main buyers through the cash futures basis trade, profiting from price differences between futures and cash markets. Treasury futures are more expensive due to asset managers holding long positions, while hedge funds in the trade have no directional risk, leaving the asset management community to bear the treasury duration risk.
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