The International Monetary Fund (IMF) has raised concerns about a small number of hedge funds that now hold significant control over the U.S. Treasury futures market. “A concentration of vulnerability has built up, as a handful of highly leveraged funds account for most of the short positions in Treasury futures,” the IMF’s April 2024 Global Financial Stability (GFS) report states. This concentration of short positions by highly leveraged funds could pose systemic threats to the financial stability of not just the U.S., but the global economy, according to the Washington-based institution. Increasing Bets On Treasury Futures By Hedge Funds Leveraged hedge funds have ramped up their short positions in U.S. Treasury futures, capitalizing on the basis trade, which involves exploiting the price discrepancies between cash Treasuries and their futures counterparts. These funds use borrowed money from the repurchase-agreement (repo) market to increase their potential returns. The IMF warns that the scale of these bets has grown large enough to spark concerns among financial stability observers. “Some of these funds may have become systemically important to the Treasury and repo markets, and stresses they face could affect the broader financial system,” the IMF stated. ...