美聯(lián)儲(chǔ)-達(dá)到國(guó)債市場(chǎng)的持續(xù)時(shí)間和杠桿率（英）

FinanceandEconomicsDiscussionSeries

FederalReserveBoard,Washington,D.C.

ISSN1936-2854(Print)

ISSN2767-3898(Online)

ReachingforDurationandLeverageintheTreasuryMarket

DanielBarth,R.JayKahn,PhillipMoninandOlegSokolinskiy

2024-039

Pleasecitethispaperas:

Barth,Daniel,R.JayKahn,PhillipMonin,andOlegSokolinskiy(2024).“ReachingforDurationandLeverageintheTreasuryMarket,”FinanceandEconomicsDiscus-sionSeries2024-039.Washington:BoardofGovernorsoftheFederalReserveSystem,

/10.17016/FEDS.2024.039

.

NOTE:StafworkingpapersintheFinanceandEconomicsDiscussionSeries(FEDS)arepreliminarymaterialscirculatedtostimulatediscussionandcriticalcomment.TheanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersoftheresearchstafortheBoardofGovernors.ReferencesinpublicationstotheFinanceandEconomicsDiscussionSeries(otherthanacknowledgement)shouldbeclearedwiththeauthor(s)toprotectthetentativecharacterofthesepapers.

ReachingforDurationandLeverageintheTreasuryMarket*

DanielBarth,R.JayKahn,PhillipMonin,andOlegSokolinskiy

BoardofGovernorsoftheFederalReserveSystem

May23,2024

Abstract

Weshowsubstantialvariationinmutualfunds’useofTreasuryfutures,bothovertimeandacrossfunds.ThisvariationfrommutualfundsdrivesmuchofthetimeseriesvariationinaggregateTreasuryfuturesopeninterest,includingover60%oftherecentriseinTreasuryfuturespositions.WeprovideevidencetheseTreasuryfuturespositionsarelargelyattributabletomutualfunds“reachingforduration”inordertotrackthedurationofabenchmarkindexwithhighcashTreasuryexposure.Specifically,weshowmutualfundsusefuturestofillthegapbetweentheirportfolioandtheindexthatresultswhentheytilttheircashpositionstowardhigherreturnbutlowerdurationassets,suchasmortgage-backedsecuritiesandequities,andawayfromcashTreasuries.TreasuryfuturespositionsaremorecommoninmutualfundswhichindicateafocusondualobjectivesofdurationmanagementandtotalreturnwhosestylehasahigherallocationtoTreasuries.Reachingfordurationallowsfundstotracktheirindexbetteratlowercost,butincreasesleverageintheTreasurymarketboththroughmutualfundslongTreasuryfuturespositionsandthroughtheleverageofhedgefundswhotakethecorrespondingshortpositionsinTreasuryfutures.

Keywords:Treasurymarkets,mutualfunds,duration,indexing,futures,mortgage-backedsecurities

JELCodes:G11,G12,G13,G23

*DanielBarth(daniel.j.barth@),R.JayKahn(jay.kahn@),PhillipMonin(phillip.monin@),OlegSokolinskiy(oleg.v.sokolinskiy@).ViewsandopinionsarethoseoftheauthorsanddonotnecessarilyrepresenttheviewsoftheBoardofGovernorsoftheFederalReserveSystem.WethankDouglasDiamond,AnthonyLeeZhangandparticipantsattheUniversityofChicagoBoothBankingSeminarforhelpfulcommentsandAudreySelleyandMelindaWangforexcellentresearchassistance.

1

1Introduction

Recenteventshaveillustratedtherisksofnon-bankleverageinTreasurymarkets.InMarch2020,largesalesbyavarietyofTreasuryinvestorsplacedpressureonleveredactorsintheTreasurymarketthatmayhaveexacerbatedageneraldashforcashandtherebycontributedtoaburstofilliquidity.1Similarly,leverageamongLiabilityDrivenInvestmentcompaniescontributedtothe2022giltmarketcrisis.2Historically,leveredbetsinTreasurymarketsalsocontributedtoTreasurymarketinstabilityinthe1950sand1960s.3TherisksposedbyoutsizedleverageintheTreasurymarketmakeunderstandingtheincentivestoleverTreasurypositionsanimportantareaoffocusforregulatorsandpolicymakers.Yet,becauseofthedifficultyinobservingtheactivitiesofmostnon-bankactors,therehavebeenrelativelyfewstudiesofthedeterminantsofcross-sectionalandtime-seriesvariationinleverageinTreasurymarkets.

Inthispaper,weexaminemutualfundleverageintheTreasurymarketresultingfromlongTreasuryfuturespositions.Weformauniquedatasetbymerginginformationonmutualfundsandtheircashandderivativesinvestmentsfrommultiplesources,includingregulatorydataandfundprospectuses.Usingthisdata,weshowthatmutualfunds’demandforlongTreasuryfuturesissubstantial:mutualfundsmakeuproughly53%ofallassetmanagerlongTreasuryfuturespositions,whichstoodat$579billioninnotionaloutstandinginJune2023,and31%oflongopeninterestinTreasuryfutures.Moreover,thereissubstantialtimeseriesandcross-sectionalvariationintheuseofTreasuryfuturesbymutualfunds.Futuresusebymutualfundsexhibitsastrongprocyclicalpattern,fallingbyalmost25%betweenDecember2019andJune2021beforerisingby65%betweenJune2021andJune2023.Between2021and2023,mutualfundsmadeup62%oftheincreaseintotalopeninterestinlongTreasuryfutures.Further,whileTreasuryfuturespositionsareconcentratedinafewmutualfundstrategies,evenwithinthesestrategiestherearelargecross-sectionaldifferencesinTreasuryfuturesholdings.

Weprovideevidencethatthisvariationisdrivenbyfunds’incentivesto“reachforduration,”usingTreasuryfuturestolengthenthedurationoftheirportfoliotomatchtheinterestrateriskoftheirbenchmarkindexeswhilereducingtheircashTreasurypositionsandinvestinginotherse-

1See

Duffie

(2020)

Heetal.

(2020),

Schrimpfetal.

(2020),

Vissing-Jorgensen

(2021),

BarthandKahn

(2021)and

Kruttlietal.

(2021)amongothersforadiscussion

.

2See

Pinter

(2023)and

Alfaroetal.

(2024)

.

3See

Garbade

(2021),

KahnandNguyen

(2022)and

MenandandYounger

(2023)

.

2

curitieswithhigherexpectedreturns.Specifically,whenfixed-incomemutualfundsincreasetheirlongTreasuryfuturespositions,theysimultaneouslydecreasetheirholdingsof(longer-duration)Treasurysecuritiesandincreasetheirholdingsof(shorter-duration)mortgage-backedsecurities(MBS).Wefindthatfundswithbroaderobjectivesalsoincreasetheirholdingsofequities.ThissuggeststhatbyusingTreasuryfutures,mutualfundscantracktheirbenchmarkindexeswhileholdinglesscashTreasuriesandmorehigher-yieldingassets.

Reachingfordurationresultsfromatensionbetweenthedurationoftheindexthatfundsarebenchmarkedagainst(often,forfuturesusers,theBloombergU.S.AggregateIndex)andtheneedtogeneratereturns.Treasuryholdingstendtobeboththehighestdurationandoneofthelower-yieldingassetsinfixed-incomefundportfolios.TheshareofTreasuriesintheAggregateIndexisbothlargeandhasgrownovertime,risingfrom35%in2011toalmost45%in2023asTrea-suryissuancehasexpanded.Inadditiontobeinglow-yielding,theseTreasuriesarealsoprimarilyoff-the-run,makingthemcostlytoholdrelativetoothermoreliquidandhigher-yieldingassets.ActivefundsthereforehaveanincentivetoallocateawayfromtheseTreasuriesandtowardsotherassets.Indeed,wefindthatingeneralactivefundstrackingtheAggregateIndexhavelowerdu-rationthantheindexbuthigherreturns.Byusingfutures,fundscanobtainasimilardurationtotheAggregateIndexusingfewercashTreasuries.WefindthatthemutualfundsthatuseTreasuryfuturestracktheirbenchmarkindexbetteroverall,eventhoughthedurationoftheircashhold-ingstendstodiffermorefromthedurationofthecashholdingsintheindexwhentheirfuturesholdingsarehigh.Weshowthatthesefunds’futuresholdingsclosethegapbetweenthedurationoftheircashpositionsandthedurationofthebenchmarkindex.

Theincentivetoreachfordurationisdriveninlargepartbytheopportunitycostofinvestinginhigher-durationassets:foregonepositionsinlow-durationassets.Overrecentquarters,weshowmuchofthevariationinreachingfordurationisdrivenbychangesinreturnstoinvestinginlow-durationmortgage-backedsecuritiesrelativetoTreasuries.WefindthatTreasuryfuturesholdingsarelargerwhentheexpectedreturnsonmortgage-backedsecuritiesarehigher,measuredbothintermsofoption-adjustedspreadsanddollarrollspecialness.Theincreasedallocationtowardsmortgage-backedsecuritiesandawayfromTreasuriesthatresultsdrivesmostofthechangesinthedurationofcashassetsforfuturesusersrelativetotheindexthatfuturesusersthenmakeupwiththeirderivativesholdings.

3

Inthecross-sectionoffunds,wefindthattheuseoffuturesishighlypersistent,andthelargestfuturesuserstendtobethesamefundsovertime.Thereislittledifferenceinperformancebe-tweenfuturesusersandnon-users,buttheflow-performancerelationshipisweakerforfuturesusers,whichmaybeduetodemandforthedurationexposurethesefundsprovide.AmongTreasuryfuturesusers,theuseofderivativesisoftenspecificallymentionedintheirprospec-tuses’sectionsonprincipalrisksandstrategiesandissignificantlylesscommonlymentionedbynon-users,providinganimportantbartoshort-termentry.Wefindfuturesuseismorecommonamongfundsthathaveagreaterincentivetoreachfordurationalongtwodimensions.First,theyaremorelikelytotracktheirbenchmarkindexesmoreclosely,andtheirprospectusesmaystateexplicitgoalstomatchtheirbenchmarkindexduration.Second,theyappeartobemorelikelytotakeonactivepositionsthatcountontheappreciationofsecurities.Inparticular,evidencefromfundprospectusesindicatesthatfundswithhigherfuturespositionstendtohavehigherturnover,objectivesfocusedontotalreturnratherthanincome,andhigherfees.Takentogether,thiscon-stitutesstrongevidencethatmutualfundleverageinTreasuryfuturesisdrivenbyincentivestoreachfordurationthatvaryoverthecycle.

OurresultsshowthatmutualfundsuseTreasuryfuturestomatchtheirbenchmarkindexre-turnwhiletiltingtowardshigher-yieldingassetswiththeircashportfolio.Thisstandsincontrasttorecentresearchonmutualfunduseofderivativesincluding

KanielandWang

(2022)and

Choi

etal.

(2023)

.Inbothcases,theauthorsfindthatmutualfundsusederivativesprimarilyasameansofamplifyingreturnsandtakingonadditionalrisk.WhilewefindthatfundsthatuseTreasuryfuturesareincreasingthedurationoftheiroverallportfolio,weshowthatthesefundsgenerallyremainbelowthedurationoftheindextheytrack.Fundswithhighuseoffuturesarethereforeclosertotheperformanceoftheindexthanthosewithout.Meanwhile,bothhighfuturesusersandfundsthatdonotusefuturestiltawayfromtheindexindifferentways.Theclosestcompa-rablepapertoourownis

Choietal.

(2023),whichexaminestheuseofinterest-ratederivatives

bymutualfunds.WhiletheirsampleincludesusersofTreasuryfutures,itisdominatedbyusersofinterest-rateswaps.Theyfindthatfundsareoftenusinginterest-ratederivativesforspecula-tionandthatderivativeportfoliosandcashportfoliosareoftenunrelated.Incontrast,wefindthatfundsuseTreasuryfuturesspecificallytomatchtheirindexdurationwhiletiltingtowardshigher-yieldingassetswiththeircashportfolio.Ratherthansuggestingthatmutualfundsare

4

usingTreasuryfuturesforindependentspeculationortoamplifyreturns,weshowthatmutual

fundsareusingTreasuryfuturestoreachforyieldinawaythatisconsistentwiththeirover-allinvestmentobjectivesandthestructureoftheirbenchmarkindexes.Therefore,inthecaseofTreasuryfutures,wefindthatcashpositionsandfuturespositionsareintimatelyrelated.

Indemonstratingthetilttowardsriskiermortgage-backedandasset-backedsecuritiesbymu-tualfundsthatuseTreasuryfutures,ourpaperalsocontributestoalargeliteratureonrisk-takingandreachingforyieldinmutualfundsandotherassetmanagers,including

KacperczykandSchn-

abl

(2013),

BeckerandIvashina

(2015),

DiMaggioandKacperczyk

(2017),

ChoiandKronlund

(2018)and

ChenandChoi

(2023)

.Reaching-for-yieldbehaviorissimilartothereach-for-durationbehaviorwedemonstrateinthispaperinthatinbothcasesthefunds’portfolioistiltedawayfromtheindexandtowardshigheryieldassets.Thetwobehaviorsthereforebothresultfromatensionbetweentheneedtogeneratereturnsandtheneedtomatchanindexorbenchmark.However,thereach-for-durationbehaviorweexamineinvolvesweightingtheportfolioofthefundtowardsonehigher-yieldingassetclassawayfromanothergivenanoverallobjectivetomatchduration.Ontheotherhand,reachingforyieldinvolvestiltingtowardshigher-yieldingassetswithinaclassorrating,givenanobjectivetomaintainacertainshareineachratingorassetclass.Inthecaseofreachingforduration,weshowthatthetensionbetweenreturnsandbenchmarkingcanulti-matelyhaveconsequencesforfinancialstabilitythroughdrivinglargemutualfundpositionsinTreasuryfutures.

ByexamininglongpositionsinTreasuryfutures,wealsocontributetotheliteratureonthecash-futuresbasistrade.4ThisliteraturehasgenerallydiscussedshortpositionsinTreasuryfu-tures,whichasdiscussedby

Schrimpfetal.

(2020),

BarthandKahn

(2021),

Kruttlietal.

(2021),

Banegasetal.

(2021),

Barthetal.

(2023)and

Glicoesetal.

(2024)areoftentakenbyhedgefunds

toexploitapositivebasisbetweencashandfuturesmarkets.TheexistenceofapositivebasishasoftenbeenexplainedasaresultofthecostsofholdingcashTreasuriesfordealers,asin

Flecken-

steinandLongstaff

(2020)and

Duetal.

(2023)

.Thisleavesopenthequestionofwhyotheractorswouldbewillingtotakethelongfuturesposition.Ourresultssuggestthatmutualfundstakethe

4Cash-futuresbasesexistinmanymarketsoutsideofU.S.Treasuries.Forinstance,

Hazelkornetal.

(2023)studies

thecash-futuresbasisinequitymarkets.Theyfindthatflowstomutualfundstrackinganindexareanimportantdriverofdemandforthatindex’sequityfutures,butintheircasetherelationshipappearstobefrommutualfunds’demandforthecashindexratherthanfutures.

5

longsideoffuturespositionstoshifttheircashholdingsawayfromTreasuriesandtowardhigher-yieldingcashassets.ApositivebasismeansthatthisleveragecouldtheoreticallybeaccomplishedmorecheaplyusingTreasurycashsecuritiesborrowedintherepomarket.However,weprovideevidencethatmostmutualfundsareseverelylimitedintheirabilitytouserepoleveragebythetermsoftheirprospectusesandbythecostsoftransactingintherepoandcashTreasurymarket.Moreover,consistentwiththemodelin

BarthandKahn

(2021),ourresultssuggestthatmutual

funddemandforTreasuryfutures,drivenbyanincentivetoreachforduration,maybeacontrib-utortotheoveralldemandforTreasuryfutures,andthereforetothepositivebasisdistinctfromthebalancesheetcostsofdealers.

Finally,ourresultshaveimplicationsfortheliteratureonTreasuryinconvenience.Resultsin

Duffie

(2020),

Heetal.

(2020),and

Duetal.

(2023)suggestthatasTreasuryissuancecontinues,the

costofholdingTreasurieshasrisensubstantially.However,thefocusofthesepapershasgenerallybeenonregulatorycoststolargeTreasuryexposuresondealerbalancesheets.OurresultspointtosubstantialimplicitcostsofholdingcashTreasuries,andespeciallyoff-the-runcashTreasuries,formutualfunds—coststhatareavoidedbythesefundsholdingfuturesinstead.ThegeneralriseinoutstandingTreasurieshasledtoariseintheshareofTreasuriesintheindexfundsmanymutualfundstrackandtherebymayhaveincreasedtheneedformutualfundstoallaythesecosts.WealsoshowthatthedemandfrommutualfundsforTreasuryfuturestoreplaceTreasurysecuritiesdependsonthereturnstoMBS,whichprovidesanimportantlinkfromTreasuryinconveniencetootherassetmarketsand,implicitly,therealsideoftheeconomy.

2Data

Foraggregatefuturesdata,weusetheCommodityFuturesTradingCommission’sTradersinFi-nancialFuturesdata,whichprovidesweeklyinformationonlongandshortpositionsforbroadcategoriesofinvestors—dealers,assetmanagers,leveragedinvestors(primarilyhedgefunds),andothers,andforawiderangeofcontracts,includingTreasuryfutures.

Werelyonthreeprincipalmicro-leveldatasources:theCRSPSurvivor-Bias-FreeUSMutualFundData,theSEC’sFormN-PORT,andahand-collecteddatasetformedbyscrapingmutualfundprospectuses.

6

TheSEC’sFormN-PORTprovidesdetailedportfolioholdingsformutualfundsonaquarterlybasis,aswellasfund-levelinformationincludingassetsandliabilities,certainriskexposures,andreturns.Fundsthattogetherwithotherfundsunderthesameparentinvestmentcompanyhavenetassetsof$1billionormorewererequiredtobeginreportingFormN-PORTfortheperiodendingMarch31,2019,butfilingsonlybecamepublicstartingSeptember30,2019.SmallerfundgroupsbeganreportingfortheperiodendingMarch31,2020.

WescrapetheuniverseofN-PORTfilingsfrom2019to2023fromtheSEC’swebsite.Thisre-sultsin208,579filingsintotal.Forourpurposes,thekeyadvantageoftheN-PORTdataisthatithasdetailsonfunds’holdingsofderivatives.Importantly,N-PORTidentifiesfutures,swaps,for-wards,andoptionpositionsseparately,whichallowsustofocusontheTreasuryfuturesholdingsofmutualfunds.WethereforeprimarilyusetheN-PORTdatatoidentifyfuturespositions.WeverifythevalidityofbothdatasourcesbycomparingfieldswheretheN-PORTdataandCRSPdataoverlapandfindtheyprovidesimilarresults.

WeusekeywordstoextracttheTreasuryfuturespositionsfromN-PORT.Forinstance,futuresderivativepositionscontainingthestrings“2y,”“5y”and“10y”arelikelytobe2-year,5-yearand10-yearTreasuryfuturespositions.However,wearecarefultoexcludewordssuggestingthatthesemaybenon-U.S.futurespositions,suchas“EUREX,”“JPN”or“gilt.”Similarly,positionslabeled“TU”,“FV”or“TY”arelikelytobe2-year,5-yearand10-yearTreasuryfuturesbecausethesestringscorrespondtothetickerslistedonBloomberg.Finally,wespot-checkthisclassifica-tionagainstasampleoffundstoensurethattheprocedureisaccurate.Inall,weidentify96,227uniqueTreasuryfuturespositionsacrossfundsandovertime.

Inadditiontothedataonfuturespositions,wealsousetheN-PORTdatafordetailedinfor-mationonholdingsofcashassets.N-PORTprovidessomegeneralclassificationsofinvestmentsbasedontheirassettypeandissuer.Mostoftheseclassificationsarestraightforward.WeclassifyinvestmentsasTreasurieswhenevertheirissuerisidentifiedastheTreasuryDepartment,whichcanincludecertainbillsotherwiseclassifiedonN-PORTascashassets.InvestmentsinMBSareclassifiedasagencyMBSwhentheyarerecordedasMBSandtheirissuerisaU.S.governmentagencyorgovernment-sponsoredenterprise,andasprivate-labelMBSiftheirissueriscorporate.

Toprovidemoredetailonfixed-incomeinstruments,weuseICEpricingandvaluationdata.Thisdatacoversawiderangeoffixed-incomesecurities,includingcorporatedebt,ABS,MBS,

7

Treasuries,andnon-U.S.sovereigndebt.Itcontainstwokeyfeaturesforouranalysis.Thefirst

isthedurationofcashinvestments,whichweusetostudytheoveralldurationofmutualfunds’cashportfolios.ThesecondisratingsforcorporatedebtbyFitch,Moody’s,andS&P,whichweusetoclassifycorporatedebtsecuritiesintoinvestment-gradeandspeculative-gradedebt.Weclassifyinvestmentsasspeculativegradewheneveratleastoneofthesethreeratingagenciesratesitasspeculativegrade.WematchthisdatatoN-PORTinvestmentsbasedontheCUSIPofthesecurityandthedateofthefiling.

WhileICEcoversabroadrangeofinstruments,wedonothaveaccesstodetailsondurationfortheto-be-announced(TBA)MBSmarket.Aswedescribebelow,theTBAmarketisapopularinvestmentforcertainmutualfundsheavilyinvestedinTreasuryfutures.WeusedatafromJPMorganMarketstoprovideanestimateofthedurationoftheseinstruments.WealsouseJPMorgandataonspreads,duration,convexity,anddollarrollspecialnessforaggregateanalysis,andforthedurationofTreasuryfuturescontracts.Thissamplecoverstheperiodfrom2012to2023.

WeusetheSEC’sMutualFundProspectusRiskReturndatasetandscrapeadditionaldatafromtheSEC’swebsitecoveringtheuniverseofmutualfundprospectuses.Weusethisdatatoidentifythestatedobjectives,strategies,andrisksoffunds,theirbenchmarkindexes,andtoidentifyfundsthathavestatedobjectivestousederivatives.Wemergebasedonfunds’SEC-assignedseriesidentifier.Forasubsetoffixedincomefundsweareinterestedintheirbenchmarkindex.AsubsetoffundsliststhisbenchmarkdirectlyintheirN-PORTfilings,inwhichcaseweusethisasthefundbenchmark.Fortheremainingfunds,thebenchmarkisdeterminedbymatchingkeyphrasesinthefundprospectustoalistofcommonfixed-incomebenchmarks,suchastheBloombergU.S.AggregateIndex,theBloombergU.S.UniversalIndex,ortheBloombergCreditIndex.First,wesearchtheprincipalstrategysectionoftheprospectustofindamatch.Ifwecannotfindamatchinthissection,wethensearchtheremainderoftheprospectus.

WethenmergetheN-PORTdatawiththeCRSPSurvivor-Bias-FreeUSMutualFunddatatoobtainacomprehensivedatasetofmutualfundholdings,returns,fundcharacteristics,andfuturespositions.TheCRSPdataprovidesmonthlyholdingsanddailyreturnsformutualfunds.Weusedatabeginningin2015forthepurposesofthisstudy.CRSPidentifiersdonotoverlapwiththeN-PORTdata.Weperformamatchbetweendatasetsfirstusingfundtickerswherepossibletomatch

8

betweenthetwosets,thenusingfundnameswheretickersarenotavailable.Whenmatchingonfundnames,wefirstlookforwhethertheCRSPnamecontainsboththeseriesnamefromN-PORTandtheregulatorynamefromN-PORT,sinceoftentheCRSPnameisaconcatenationofthesetwonameswithadditionalcharactersdescribingtheshareclass.Inthecasethatthisprocedureproducesmultiplematches,wethenhand-selectbetweenthematches.Foraselectgroupoffundsthatweareunabletomatchusingthisprocedure,wethenhand-matchthefunds.Weareabletomatch13,481fundsbetweenthetwodatasetsfortheperiod2019through2023.

3AggregateTreasuryfuturespositionsofmutualfunds

OneofthemoredramaticchangesinTreasurymarketactivityoverthepastdecadeisthesignif-icantriseinTreasuryfuturesvolumes.AggregatepositionsinTreasuryfutureshaverisenfromroughly$500billioninnotionalexposurein2010toover$2trillionin2024.Thisgrowthhasre-ceivedattentionprimarilyduetoworriesaboutthegrowthinhedgefunds’shortTreasuryfuturespositions,whichseemtoprimarilysupporttheiractivityinthecash-futuresbasistrade.5Yet,muchlessisknownabouttheincentivesforinvestorstotakelongpositionsinTreasuryfutures.Below,wedescribetheessentialfeaturesoftheU.S.Treasuryfuturesmarket.WethenshowthattheprimaryinvestorsinlongTreasuryfuturesareassetmanagers,withthemajorityofpositionsaccountedforbymutualfunds.Wedemonstratethesepositionsshowsubstantialvariationovertimeandacrossfunds,thoughitisusuallythesamefundsholdingthelargestfuturespositionsacrosstime.Therestofthepaperthenfocusesonwhatdrivesboththetime-seriesandcross-sectionalvariationinmutualfundholdingsofTreasuryfutures,tounderstandthedriversofthismajorconcentrationofleverageintheTreasurymarket.

3.1Structureofthefuturesmarket

TheTreasuryfuturesmarkethasbeencoveredelsewhereingreatdetail,forinstancein

Burghardt

andBelton

(2005)and

BarthandKahn

(2021)

.Here,weprovideabriefoverviewofsomesalientfeaturesofthemarketstructureandtheroleofassetmanagersinthismarket.

5See

Schrimpfetal.

(2020),

BarthandKahn

(2021),

Kruttlietal.

(2021),

Banegasetal.

(2021),Barthetal.

(2023)and

Glicoesetal.

(2024)

.

9

Treasuryfuturesareofferedatavarietyofdifferentmaturitypoints.Themostcommoncon-tractsarethe2-year,5-year,10-year,and30-yearTreasuryfutures.Eachcontractissettledviaphysicaldelivery.TheCBOTallowsforseveraldifferentTreasuriesinaspecifiedrangeofmatu-ritiestobedeliveredintoeachcontract.AllowingthedeliveryofmultiplesecuritiesiscommonlythoughttoaffordadditionalliquiditytotheTreasuryfuturesmarket,andtheTreasuryfuturesmarketisgenerallythoughttobemoreliquidthanTreasurycashsecurities,providedthosesecu-ritiesarenoton-the-run(see

Bakeretal.

(2020))

.

Theprice,duration,andyieldofaTreasuryfuturescontractarerelatedtotheunderlyingTrea-suriesbecauseoftheoptiontophysicallydeliverTreasuriesintothecontractatexpiration.Thisnear-arbitragerelationshipisenforcedbytheTreasurycash-futuresbasistrade,whichisdiscussedatlengthin

BurghardtandBelton

(2005),

FleckensteinandLongstaff

(2020)and

BarthandKahn

(2021)

.Asaresultofthistrade,thepriceandriskattributesofaTreasuryfuturescontractwillcloselyreplicateaTreasurycashsecurity,thedifferencebeingthatthefuturescontractdoesnotrequirethefullnotionalamounttobepostedupfront.Theonlycashrequirementattheinitiationofafuturescontractistheinitialmargin.Variationmarginmayalsobecalledifthepositionde-preciates(orappreciatesfortheshortposition)enough.ThisallowsfortheuseofleverageintheTreasuryfuturesmarket,whichwediscussbelowasakeyfeatureoftheattractivenessofTreasuryfuturestoassetmanagers.

3.2AssetmanagerTreasuryfuturespositions

Asdiscussedin

BarthandKahn