Hedge Funds Face New Watchdog Scrutiny Over Huge Macro Bets (1)

The world’s top financial stability watchdog is setting up a dedicated taskforce to unmask areas where shadow banks could spark a broader crisis, the chair of the Financial Stability Board told Bloomberg News.

The carry trade, used by investors to place leveraged bets on interest rates, and the basis trade, a popular wager using financial gearing to exploit price discrepancies in government-bond markets, are “two excellent examples” of areas the FSB could focus on, said Klaas Knot, who is also governor of the Dutch National Bank.

“These are areas where there is potential for a lot of leverage ...