The trades - typically the domain of macro hedge funds with relative value strategies - consist of selling a futures contract, buying Treasuries deliverable into that contract with repurchase agreement (repo) funding, and delivering them at contract expiry. "Cash-futures basis positions could again be exposed to stress during broader market corrections," Fed economists said in an Aug. 30 note. Separately, in a Sept. 8 note that looked among other things at hedge funds' Treasury exposures, Fed economists said there was a risk of a rapid unwind of basis trade positions in case of higher repo funding costs. "However, the approach they take may not be straightforward as the Fed does not have direct regulatory oversight over hedge funds," he said. "Cash futures basis trades are vulnerable to two risks: higher margin costs on the futures short and higher financing costs on the cash long position," Barclays said in a note on Tuesday.

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Persons: Steven Zeng, Deutsche's Zeng, Davide Barbuscia, Megan Davies, Paul Simao Organizations: Federal Reserve, Treasury, repo, Futures Trading Commission, Deutsche Bank, U.S, Barclays, Thomson Locations: U.S, Treasuries