Element Capital Management has been the bigges buyer in dozens of government-bond auctions over the past 10 months
This from the Wall Street Journal, citing people familiar with the matter
- Said to be using a strategy to exploit small inefficiencies around bond auctions
- "Bond-auction strategies"
- The aim is to take advantage of the move where a burst of new supply tends to slightly depress prices for short periods
The Journal explains:
- In the past, Wall Street dealers and hedge funds scored profits shorting "when-issued" bonds.
- These are contracts conferring the right to purchase Treasury securities when they are sold days later at auction.
- Then, these traders would buy bonds during Treasury auctions at the slightly lower prices and use these newly purchased bonds to close out their short sales.
- The difference between the higher price at which they sold the Treasurys and the lower price they paid at auction was their profit.
There is much more detail at the link, and article does not appear to be gated.