Leaders | Gensler v Griffin

Bashing hedge funds that trade Treasuries could cost taxpayers money

Why fears about the “basis trade” are overblown

Illustration: Vincent Kilbride

Dec 7th 2023

There is no more important financial market than American government debt, and it is growing fast. In the 12 months to October the Treasury, on net, issued $2.2trn in bills and bonds, worth 8% of GDP, to fund America’s gaping deficit. Adding to the supply, the Federal Reserve has shrunk its own portfolio of Treasuries by nearly $1trn since mid-2022. Foreign demand is flat, meaning the Treasury increasingly needs big asset managers and hedge funds to buy its debt. That is worrying some regulators. Could capricious hedgies shake the foundation of the global financial system?

This article appeared in the Leaders section of the print edition under the headline “Gensler v Griffin”