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Hedge funds up Treasury shorts

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Hedge funds are likely expanding their basis trade activity, which exploits the price differences between future and their underlying bonds, with short sales of US Treasury futures having surged, according to a report by Bloomberg.

The report cites that latest data from the US Commodity Futures Toadying Commission (CFTC) as revealing that hedge fund short positions have risen to over six million 10-year-note futures equivalents, with asset managers net long by a smiler amount.

The likely surge in basis trades, which brings with its the possibility of an increase in market volatility should positions be unwound quickly, came as the most recent Treasuries sell off was at its peak, pushing 10-year yields to the highest level seen since before the 2008 financial crisis.

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