The Mortgage Hedging ‘Beast’ Is Returning to the Treasury Market

At the height of the US bond-market selloff last month, Vishal Khanduja detected something unusual.

As yields on the longest-dated Treasuries surged toward a 19-year high, large waves of futures sales hit the market right when mortgage-backed securities were being pummeled particularly hard.

To Khanduja, a portfolio manager at Morgan Stanley Investment Management who has been on Wall Street for the past two decades, it was a clear sign that others, like him, were racing to protect against the risk of a deeper drop in their housing bonds by entering trades that would pay off if Treasuries slumped further ...