ZROZ - Hedging Repo Exposure In The Treasury Basis With One-Month SOFR Futures

A Treasury repurchase agreement (“repo”) is a key element of any Treasury cash/futures basis trade. For example, being long a Treasury cash/futures basis position involves a long position in cheapest to deliver (or another note/bond eligible for delivery) Treasury note/bond and a DV01 weighted short position in the futures contract. The long basis typically involves financing ownership of a Treasury note or bond with funds borrowed in the Treasury repo market. For this purpose, the borrowing typically occurs in the overnight bilateral repo market1, with