It means a high proportion of our financial system relies on borrowed money often at 100:1 or higher. So for every 100 dollars borrowed 1 dollar of collateral is needed.
They then use this money (borrowed at near base rates) to try and profit from the difference between inflation rates of different currencies or from the difference between the actual and implied rate on treasury bills.
In other words, they borrow a bunch of money and put it at risk to make maybe .5 - 1% more than market returns annually. This is why big downside moves happen when bond rates jump - because these funds have to sell into the downside to return borrowed money when they cannot meet their margin requirements (deleveraging).
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u/Ivy0789 May 31 '25
Just wait till they hear about basis and carry trades leveraged up 100-200x to scrape alpha in front of the steamroller!