China may not give up the cabinet
The revenues of the US Treasury increased overnight, which led some to doubt that China was receiving the treasury bonds. I remember that the prices of bonds are inversely moved with the returns, so if someone sells a lot of treasury bonds, this will reduce the price of bonds and raise their revenues. As Zerohedget pointed out, the cabinet revenues were superior because the foundation trade was blowing. Let’s divide it.
Understanding the basis for trade
theTrade foundationIt is a strategy that benefits from the price difference between aFutures contract contractandBasic assets(Often a bond or other security). The goal is to profit from the “basis” – the difference between the immediate price of the original and the price of futures.
In the context of US Treasury bonds, the basis usually includes:
- Buying treasury bonds (long cash bonds)
- Selling the contract of future treasury bonds (short futures)
Traders expect that by the time when the futures contract ends, the price of futures and cash bonds-which allows them to lock a risk-free profit, especially when they areimpactTrade with cheap borrowed money.
Pointing the pennies in front of Steamroller
Perhaps you can guess where this is going. theTrade foundationHe is the adherent child for“Point penalties in front of Steamroller”:
- ✅Pennies: Small profits that are predictable from the spread between the cash cabinet and futures.
- 🚂Steamroller: The risk of huge losses if the financing costs are high, or the prices of bonds move sharply, or the market liquidity is evaporated – especially when the trade is highBenefit.
This metaphor really picks up asymmetry: the small upper side against the potential negative catastrophic side. It is one of those deals that work … so that you don’t really do it.
Deeper diving with Jim Bianco
Jim Bianco’s Bianco Research posted an excellent thread on this X overnight. Below are some of the main excerpts:
Something broke tonight in …
The full story is available on Benzinga.com
