- In normal times, hedge funds help keep money markets humming by profiting handsomely from tiny price discrepancies between Treasuries and futures linked to those bonds. When the $800 billion trade unwinds, however, the Federal Reserve may need to step in—as it did during the pandemic—to prevent the type of disastrous credit crunch exemplified by the 2008 financial crisis.
Investors are looking to pick up the pieces after President Donald Trump announced a 90-day pause to the sweeping “reciprocal tariffs” that sent stocks plunging, but many on Wall Street suspect chaos in the bond market truly forced the administration’s hand. A confounding spike in yields sparked fears of a liquidity crisis, and the collapse of the so-called basis trade may have been one of the main culprits.
