The Treasury Basis Trade
How hedge funds profit from tiny spreads using massive leverage
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Initial State
- A hedge fund has $100 in capital.
- A repo dealer has cash available to lend against Treasury collateral.
- The futures clearinghouse will require margin for any futures positions.
👤
Hedge Fund
person
Balance Sheet
in $000s
Assets
Cash
100
Total100
Liabilities
Total0
Equity
Fund Capital
100
Total100
🏦
Repo Dealerⓘ
institution
Balance Sheet
in $000s
Assets
Cash
10,000
Total10,000
Liabilities
Funding
10,000
Total10,000
Equity
Total0
🏦
Futures Clearinghouseⓘ
institution
Balance Sheet
in $000s
Assets
Margin Deposits
0
Total0
Liabilities
Due to Members
0
Total0
Equity
Total0
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