The Devastating Treasury Basis Trade Is Back And Hitting Record Levels… Just As Liquidity Collapses To All Time Low

As if the worst banking crisis since Lehman (and in terms of notional assets, even worse) wasn’t bad enough – and it will get much worse because a quick and dirty overlay of commercial bank deposits currently vs where they should be assuming the Fed completes its normalization paradigm shows another $1.5 trillion in outflows…

… a familiar systemic crisis ghost has made a surprise re-appearance: the trade that led to the repo crisis in Sept 2019 and also brutally exacerbated the crisis of March 2020 when for several days the Treasury market had zero liquidity, is back and is looking to blow up a whole new generation of clueless rates traders.