I am trying to extend my understanding of Treasury futures net basis trading by understanding the funding markets.
If net basis is cheap, an investor can buy the basis. This means that the investor buys the underlying bond and sell the conversion factor weighted futures contract. This assumes that the bond can be funded and locked at the repo rate. However, what I don't quite understand is the availability of balance sheet. Does this mean the investor cannot obtain repo financing at the supposed repo rate? If it cannot, then wasn't the view that the net basis was cheap predicated on an actual repo rate?
Lastly, if you're short the basis. Does this "create" synthetic balance sheet? Since you're buying futures, you would post a small variation margin. And since you're selling the underlying bond, you're generating cash and lending in repo.
Are there reading materials or discussions that explain this more? It seems like I've gotten a good feel of futures basis trading but now balance sheet limitations and regulatory constraints adds another wrinkle to this.