Bond funds, facing depressed returns from aggregate bond indices that are 45% government debt, are buying credit instead while hedging duration exposure through treasury futures, and hedge funds are shorting those futures while repo-ing cash treasuries from primary dealers, creating a carousel of leverage that unwinds violently when spreads tighten.
causalpending
Speaker
Simon WhiteEvidence Quote
“bond funds have been trying to enhance their returns by buying more credit...they have to buy a duration hedge...They can just go and use futures...hedge funds short the futures against the bond funds...they repo in the treasuries...from the primary dealers [35:25]”
Created: 8/11/2026, 7:06:30 AM
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