ICYMI – The Fed’s Barr expressed considerations over the dangers of extremely leveraged buying and selling by hedge funds within the Treasury market. Particularly the “foundation commerce”.

His remarks in abstract:

• “leverage also can enhance dangers to each market individuals and to Treasury market functioning and should be managed appropriately by each traders and their counterparties, together with by gathering margin to handle counterparty danger”
• though the Fed collects data on the triparty repo market, Barr stated there’s much less knowledge on trades that aren’t centrally cleared
• stated the federal government wanted extra details about these trades

—

In (very) transient the”foundation commerce entails the usage of leverage to revenue from the value hole between Treasury futures and the underlying money market. No single regulator sees the total image and may subsequently verify the total scope of dangers related to foundation buying and selling.

Michael Barr is vice chair for supervision on the US Federal Reserve. He spoke on Thursday at a New York Fed convention on the Treasury market.