Matt Levine’s Money Stuff: People Worry About the Basis Trade

Programming note: Money Stuff will be off tomorrow, back on Monday.

Basis trade

A simple model of US Treasury bonds could go something like:

1. The US government borrows a lot of money and has a very long time horizon, so it wants to borrow a lot of money for terms of 10 or 20 or 30 years.
2. Lots of asset owners — pension funds, university endowments, people saving for retirement — also have a long time horizon and want to earn a safe return, so they want to lend the government money for terms of 10 or 20 or 30 years.

This ...