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The popular media refers to US.bond future basis trades in some contracts as arbitrage..they cite that as the future trades richer to cash hedge funds can buy basis and make money.

I'll assume they're talking about ctd basis here. Isn't this statement (taken quite literally) factually just wrong ? Gross basis is negative, Sure, but that's mainly carry related as BNOC Is positive ?

Alternatively, do they mean option adjusted basis is negative ? In which case I can see that there is a (hard to monetize) arbitrage. As picking up cheap options can still lead to a terminal value of zero unless I can lock in some value by selling bond opt or swaption vol.

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    $\begingroup$ recent paper federalreserve.gov/econres/notes/feds-notes/… It may also help to consider the highly anomalous market behavior in March 2020, at the beginning of the COVID lockdowns in the U.S. bloomberg.com/news/articles/2020-03-17/… $\endgroup$ Commented Apr 11 at 10:28
  • $\begingroup$ Thanks. Very interesting, I guess I look at long end stuff, so I am not seeing these negative BNOCs (generally) or positive IRR/repo spreads. The long end contracts at the moment are fairly rich with optionality so even if option adjusted basis is negative, I'd say that is not an arb. $\endgroup$
    – user68819
    Commented Apr 11 at 12:15

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