Quantifying Treasury Cash-Futures Basis Trades

Jonathan Glicoes, Benjamin Iorio, Phillip J. Monin and Lubomir Petrasek
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Phillip J. Monin: https://www.federalreserve.gov/econres/phillip-monin.htm
Lubomir Petrasek: https://www.federalreserve.gov/econres/lubomir-petrasek.htm

No 2024-03-08-3, FEDS Notes from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The Treasury cash-futures basis trade exploits the difference in prices between a Treasury security and a related Treasury futures contract – the so-called cash-futures basis – by purchasing the asset that is relatively undervalued and selling the other in a bet that the prices will converge. Basis traders support Treasury market functioning by keeping the prices of Treasury futures near their fair value relative to Treasury securities and by serving as an important source of demand for Treasury securities, including during the 2017-2019 period of quantitative tightening when basis traders absorbed much of the increased Treasury supply.

Date: 2024-03-08
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfn:2024-03-08-3

DOI: 10.17016/2380-7172.3458

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