The $25 trillion market in U.S. Treasury bonds is the largest market of any kind in the world today, and it is the pace-setter for all financial instruments throughout the trans-Atlantic financial system. An article in the Sept. 26 Financial Times headlined “The U.S. Federal Reserve Has Suggested the Build-Up of Bets in the Treasury Market Could Pose a Stability Risk,” sounds the alarm over the fact that high-rolling hedge funds are in the process of taking over that market, turning it into dangerously volatile speculative free-for-all.
In other words, the speculative financial cancer that has been given free rein throughout the trans-Atlantic financial system since August 1971, has now spread to the central nervous system itself.
EIR reported on this same development earlier this year, and on the fact that the Fed’s policy of jacking up interest rates was instrumental in creating this disaster. In its Sept. 26 article, the FT reports that both the Fed and the Bank for International Settlements have over the last month issued warnings about the “rapid build-up in hedge fund bets in the Treasury market.” Back in 2008, the market in Treasuries amounted to about $5 trillion; today it stands at $25 trillion. Furthermore, the so-called primary dealers, the 24 banks that transact directly with the Treasury Department and facilitate trading for investors, have historically been the “market makers” in Treasuries (working with the Treasury to set rates, keep the market steady, and so on); but now the hedge funds are increasingly the market makers, but they are focused on highly leveraged speculative arbitrage, called “basis trade,” which inherently will provoke—and profit from—wild swings in the market.
