Hedge fund short futures positions in the 2-year, 5-year, and 10-year contracts rose by $411 billion between October 4th, 2022 and May 9th, 2023. Consistent with these empirical trends, spreads on the trade suggest it has been profitable at several points in recent months, without considering the value of options embedded in the trade (and whose value has likely increased as measures of Treasury market uncertainty have risen). The cash-futures basis trade is an arbitrage trade that involves a short Treasury futures position, a long Treasury cash position, and borrowing in the repo market to finance the trade and provide leverage. This trade presents a financial stability vulnerability because the trade is generally highly leveraged and is exposed to both changes in futures margins and changes in repo spreads. Hedge funds unwinding the cash-futures basis trade likely contributed to the March 2020 Treasury market instability.
- Date Posted:
- August 31, 2023
South Korea’s fertility rate slumped to 0.78 last year, from 0.81 in 2021. The slide has worsened in recent months, falling to 0.70 in the April-to-June quarter. Since 2013, the country of 52 million has reported the lowest fertility rate among wealthy members of the OECD—where the average fertility rate stands at 1.58. No other OECD member has a fertility rate below 1. South Korea’s population began declining in 2020, with the number of deaths overtaking total births. Its military conscripts are expected to shrink by nearly half over the next two decades. The military has started to deploy more unmanned combat aircraft and increase the number of women serving. The country’s total student enrollment has shrunk for 18 years straight.