Trillion-dollar basis trade will keep growing – asset managers

Treasury issuance, credit trades and repo stigma drive rise in futures use

The forces that have propelled the US Treasury basis trade to notional exposures of more than a trillion dollars are only getting stronger, asset managers have said.

Record government issuance has boosted the weight of Treasury bonds in a key index, driving the bond funds that benchmark to that index to use more futures to match duration – a trend that is set to continue as projected issuance balloons. In the basis trade, hedge funds arbitrage price differences between cash bonds and futures.

At