• In normal times, hedge boxes help maintain tinnitus markets By taking advantage of the small contradictions of the prices between the cabinet and the future contracts associated with these bonds. However, when the trade of $ 800 billion is relaxed, the Federal Reserve may need to intervene – as happened during the epidemic – to prevent the type of catastrophic credit crisis that is the 2008 financial crisis.

Investors look forward to Pick up The cutting after President Donald Trump announced a 90 -day stoppage to the sweeping.Mutual definitions“This sent stocks drowned, but many in Wall Street suspect chaos in Bond market I really forced the hand of management. A High altitude In the returns, fears raised from LiquidityAnd the collapse of the so -called “basis trade” may be one of the main perpetrators.

In normal times, hedge funds are borrowing severely to take advantage of small contradictions in the treasury and the future associated with these bonds. They benefit wonderfully, and in turn help to preserve it Money markets buzz. Pandemim Covid-19 and modern commercial policy have shown what can happen when trade is $ 800 billion RelaxationHowever, some experts believe that the Federal Reserve needs to be better to deal with the following possible crisis, for example, three months or so.

After all, fixed income markets can be volatile. Initial investors accumulated to the treasury bonds last week with the decrease in shares, but the tide soon turned – even as the massacre continues in the stock markets. Yield,, Which represents the annual return of the investor, rises with the low prices of bonds, and they rose early this week as a sale in US debt. Questions raised About her typical security.

The Treasury Secretary, Scott Pessent, said the Trump administration Want To see a 10 -year treasury return, the criterion of mortgage rates, car loans, and other types of borrowing costs throughout the economy. It rose over 4.5 % on Wednesday morning, and while the stock market rose after “Trump’s stop”, the reaction to the bonds was more complete. From Thursday noon, the return rose for 10 years again to 4.4 %, although stocks launched part of their gains from historical bounce on Wednesday.

Shortly after Trump announced the import taxes on goods from most countries (with the exception of China) it will be reduced to the baseline by 10 %, bessent to reject The fluctuations of the bond market were behind the president’s heart. But Kevin Haset, Trump president of the American National Economic Council, He said CNBC Thursday The movements in the Treasury market added “You may be more urgent” to the decision to temporarily cancel mutual definitions. The White House did not respond wealth Request to comment.

Toristin Selk, chief economist in the private stock giant Apollo, said, whatever the matter, the extraordinary increase in long -term interest rates amid the sale of stocks was closer to the “mystery of the killing.”

“This tells me there [are] He said to some forced sellers there. luck. “A person sells not because they believe that the economy is good or bad, or inflation is good or bad, or [that] The Federal Reserve will rise or not raise [interest rates]”

Many commentators are certainly martyred in foreign sale as a possible reason. Trump announced a 145 % tariff on goods from China, the second largest foreign holder of a treasury, which led 770 billion dollars Among the United States – or simply has a lesser reason for the purchase of American assets with a decrease in bilateral trade.

However, if this is a major factor this week, Slä said, he expected to see more important weakness in the US dollar (which significantly decreased on Thursday). Goldman Sachs and William Marshall and Bill Zu agreed.

“We will not exclude a diversification away from the origins in dollars over time,” they wrote in a note on Wednesday, “but the near future behavior seems more consistent with some pre -emptive anxiety about this possibility in conjunction with relaxation from Longs Longs.”

In other words, this is what can happen when hedge boxes are forced to collectively empty the cabinet. In extreme cases, liquidity can dry – which represents a threat to the wider economy if the Federal Reserve does not interfere.

How do “Basis Trade”

Experts say that hedge funds are presented in the first place, due to the basic imbalance in the credit markets. Many asset managers for investment funds, pension funds and insurance companies have long-term obligations-such as batches to Retired Contracts on the road – and they want to buy assets with similar exposure to interest rates, or duration, throughout that period.

The classic way to do this often includes the purchase of large quantities of future cabinets, but someone needs to take the other side of trade. This is the place where hedge funds and other intermediaries are used, and the sale of these derivatives with hedging from this “short” position by purchasing a cash treasury.

On the other hand, hedge funds benefit from the spread between the value of the bond and the contract of the large number of futures: with the end of the end of the latter, its price decreases and the short bet is abandoned. The profit comes from the price difference – the “basis” – between the future nodes and the main cabinet cabinet.

However, “this arrangement is fragile by its nature,” according to the recent Brookings Foundation paper Written by Harvard Economic and former Federal Reserve Governor Jeremy Stein with Anil Kachaab at the University of Chicago, Jonathan Walin at Harvard University and Joshua Young from Colombia.

To make trade worthy of attention, hedge boxes need to borrow heavily, and sometimes use up to 50 to 100 times. However, when the markets start walking in the wires, they can be vulnerable to margin calls or are pressed in another way to liquidate their position when they maintain losses in other deals (especially with decrease in stock prices) and investors withdraw their money.

A better solution to the federal reserve

When the market is struggling to absorb a huge increase in the supply of the cabinet, it waves on the horizon in the 2008 financial crisis as the worst case. When the revenues rose this week, many Wall Street analysts I watched closely For signs, the federal reserve will be forced to intervene. The central bank was fast to prevent such a position at the beginning of the Covid-19s, as it bought 1.6 trillion dollars in the treasury for several weeks.

KashyAP and its co -authors claim that this solution is lower than the ideal. It may be just an attempt to maintain stable financial markets, but it also looks like quantitatively-when the central bank buys financial assets to reduce long-term interest rates.

“Without clear discrimination between buying bonds for market purposes, in exchange for monetary policy purposes, the initial round of treasury purchases in the spring of 2020 turned into a wider effort to monetary policy that eventually witnessed the FED 4 trillion dollars to its joint holdings of the industrial numbers and the agency that was manufactured by the agency.”

Therefore, they call for a more “surgical” approach to such a crisis: help in hedge funds from relaxing by buying a treasury and selling futures. While the possibility of saving hedge boxes may cause some eyebrows, the authors claim that their solution may be more effective in preventing reckless behavior from the purchase of explicit treasury.

There are supplementary solutions, of course. Buyers are difficult to find during the treasury sale, partly, because banks and brokers are limited to reinforced capital requirements after the global financial crisis and subsequent Dodd-Frank. She was Mimic During the epidemic to help lenders buy more US debt, Pesent said on Wednesday that these changes should take place permanently as part of a wider batch of decomposition.

Even if the Treasury Minister gets his desire, the markets may eventually need to take the most severe measures.

This story was originally shown on Fortune.com

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2025-04-11 10:00:00