Hedge Funds Retreat From Treasury Basis Trade as Selloff Deepens

Leveraged Treasury basis-trade holdings have fallen 20% this year to $1.2 trillion, Morgan Stanley estimates, as a US interest-rate outlook and improved trading conditions erode the trade's profitability. The pullback is concentrated in 2-year and 5-year Treasury futures, with CFTC data showing net shorts in 2-year futures down more than 40% from March.