Hedge Fund Basis Trade Faces Scrutiny as Regulators Mull Probe

Hedge funds’ record bet on US Treasuries is facing fresh scrutiny as the world’s most powerful financial watchdog mulls a deep dive into the money-spinning trade.

After running into difficulties with a mammoth project launched last year to gather data on the sprawling shadow banking system, the Financial Stability Board is now discussing a pivot to focus on a handful of priority areas, including the so-called basis trades, three people with knowledge of the matter said.

The potential probe comes as wagers on one of the trades, which sees some of the world’s biggest hedge funds try to profit ...