Obscure $1 Trillion Basis Trade With 100x Leverage Threatens $29 Trillion U.S. Treasury Market as Fed May Bail Out Hedge Funds

A $1 trillion basis trade with leverage up to 100 times is posing a threat to the global financial system, as even minor market movements could trigger cascading margin calls. This complex trade involves bets on bonds and has nearly destabilized the $29 trillion U.S. Treasury market, according to a Federal Reserve official. The Brookings Institution has warned that the Federal Reserve might need to intervene by directly bailing out hedge funds involved in these trades. Meanwhile, Wall Street banks report that investors managing trillions of dollars are beginning to reduce their exposure to U.S. assets, indicating growing concerns about the stability of the financial foundation.