https://www.bloomberg.com/news/arti...ndate-to-centrally-clear-us-treasuries-trades As part of a core group of 10 or so firms, they rely on vast sums of money borrowed from Wall Street banks — often 50 times what they invest themselves — to pump tens of billions of dollars into the trade and supercharge returns. So colossal are their bets that some say they’ve become central to the buying and selling of Treasuries, itself the cornerstone of global capital markets. Hoffman, 51, of ExodusPoint Capital Management, Bonello, 52, at Millennium Management and Tipermas, 41, at Citadel have used the wager for years to produce gains that run into the billions, according to several people familiar with the traders who requested anonymity as the details aren’t public. Others also do the trade at a vast size, the same people say, including Yan Huo and Ryan Letchworth at Capula Investment Management, Citadel’s Ivan Chalbaud, founder of Symmetry Investments Feng Guo and Steve Brown at Balyasny Asset Management. Lorenzo Rossi of Kedalion Capital Management is active, too, as is Alexander Phillips at Tudor Investment Corp. https://www.bloomberg.com/news/arti...aders-dominate-gigantic-bond-bet?srnd=premium In U.S. Treasury futures, the basis is the price spread, usually quoted in units of 1/32, between the futures contract and one of its eligible delivery securities. This example will show how basis is determined and will help to consider what market action might do the level of the spread or basis. Starting with the list of U.S. Treasury securities eligible for delivery into a quarterly U.S. Treasury futures contract, the list could range from relatively small (three issues versus the Ultra Ten-Year contract) to many (18 issues versus the Ultra Bond contract). Each eligible security has its own conversion factor for the respective quarterly futures contract it is eligible for. The conversion factors are set based on the pricing to the first business day of the quarterly contract month and are fixed for the life of that contract month. The variable inputs to the basis are therefore the price of the futures contract and the price of the security being considered, both subject to changing market conditions. What is Basis? Basis can be defined as the difference between the clean price of the cash security minus the converted futures price. Basis = Cash Price – (Futures Price x Conversion Factor) For example, consider a cash 5-year note, the 1.75% of November 30, 2021 versus the March 2017 5-year U.S. Treasury futures contract (FVH7). Assume the price of the cash security to be 99-10+ (1/32), the price of FVH7 to be 117-18+ (1/32), and the conversion factor (CF) of the cash security versus March 2017 5-year futures to be 0.8292. Because U.S. Treasury cash and futures products trade in full points and fractions of a 1/32 we must first convert our futures and cash prices to decimal then perform the math, then convert back to 1/32 form. Step One: Convert prices from 1/32 to decimal Pfutures = 117-18+ (1/32s) = 117.578125 CF = 0.8292, Pfutures = (117.578125 x 0.8292) = 97.49578125 Pcash = 99.10+ (1/32s) = 99.328125 Step Two: Perform the math in decimal Basis = 99.328125 – 97.49578125 = 1.83234375 Step Three: Convert back to 1/32s 1.83234375 = 58.64 (1/32s) Once this is done with all the securities eligible for delivery, traders can either trade the basis outright or use the gross basis as a starting point for deeper relative value analysis like calculating the cheapest-to-deliver (CTD) security of a given futures contract. Trading of the U.S. Treasury basis is active part of the U.S. Treasury securities market. Basis trades can be executed and submitted for clearing at CME Group via an exchange-for-physical (EFP) transaction under Rule 538 of the exchange.