The Wall Street Skinny
This podcast is a smart and entertaining peek into the world of investment banking, sales & trading, private equity, hedge funds and more. Hosted by two lifelong friends with a passion for teaching, and over two decades of experience on Wall Street. Discover the basics, ranging from “what is investment banking?” to “what moves markets?". Learn about different roles and exit opportunities, and get tips on how to land the job. Our mission is to make the world of Wall Street accessible to everyone, while keeping things relatable and fun.
Whether your goal is to work on Wall Street, or if you have NO idea what any of those things are and just want to learn some basics, this podcast is for you.
The Wall Street Skinny
154. Bond Market Chaos: Unpacking the Basis Trade Blowup Theory. Cause...or Convenient Excuse?
There has been some speculation that the reason for "chaos in the bond markets" isn't loss of confidence in the US but rather the result of an unwind in "the basis trade" leading hedge funds to blow up and causing yield spreads to widen. To explore this theory we need to get super granular.
We go deep into the relationship between cash bonds, futures, and interest rate swaps—and explain why so many market participants prefer the derivatives over buying Treasuries outright. We also walk through how structural leverage, repo financing, and margin exposure interact in this high-stakes trade, and why even a small dislocation can trigger major losses when trades are levered 50 to 1 (or more). Don't worry, we do keep it accessible—even if you’ve never heard of the Treasury Bond Basis book or you’re not fluent in swaps. HOWEVER, this episode does assume a basic understanding of the bond markets and is definitely "advanced" for those not fluent in fixed income speak, so you might need to listen a few times like Kristen.
Finally, we tackle what the Fed can and can’t do in the face of this volatility, whether quantitative easing or regulatory changes could help, and why some argue the blowups are a symptom of something bigger—not the cause. Whether you're a market pro or just trying to understand what all the chaos in the headlines actually means, this episode gives you the tools to make sense of it.
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