U.S. Treasury Sell-Off Linked to Basis Trade Unwinding

According to Odaily, Felipe Villarroel, a portfolio management partner at TwentyFour Asset Management, reported that after discussions with the government bond trading sector, TwentyFour has not identified a clear reason for the recent sell-off in U.S. Treasuries. Villarroel noted that the most common explanation is the unwinding of 'basis trades.' This situation involves traders selling U.S. Treasuries to meet margin calls on leveraged positions. These positions aim to arbitrage small price differences between U.S. Treasuries and U.S. Treasury futures or interest rate swaps. The large volume of transactions triggered a chain reaction, resulting in many bonds needing new buyers, who were too cautious to catch the falling prices during one of the most volatile weeks recently.