The Hedge Fund Traders Dominating a Massive Bet on Bonds

Jonathan Hoffman, John Bonello and Jonathan Tipermas share more than just similar first names. They’re the driving force behind a gigantic wager on government debt that’s been giving regulators sleepless nights.

They and their teams are top players in the “basis trade,” a bet by a few of the world’s biggest hedge funds that profits from the tiny price gaps between Treasuries and derivatives known as futures, people active in the market say. That makes them some of the most important individuals in finance today.

As part of a core group of 10 or so firms, they rely on vast sums of money borrowed from Wall Street banks — often 50 times what they invest themselves — to pump tens of billions of dollars into the trade and supercharge returns. So colossal are their bets that some say they’ve become central to the buying and selling of Treasuries, itself the cornerstone of global capital markets.

Hoffman, 51, of ExodusPoint Capital Management, Bonello, 52, at Millennium Management and Tipermas, 41, at Citadel have used the wager for years to produce gains that run into the billions, according to several people familiar with the traders who requested anonymity as the details aren’t public.

Others also do the trade at a vast size, the same people say, including Yan Huo and Ryan Letchworth at Capula Investment Management, Citadel’s Ivan Chalbaud, founder of Symmetry Investments Feng Guo and Steve Brown at Balyasny Asset Management. Lorenzo Rossi of Kedalion Capital Management is active, too, as is Alexander Phillips at Tudor Investment Corp.

This group is rarely in public view. But interviews with more than a dozen market participants and documents reviewed by Bloomberg point to their dominance of a wager that’s roared back to life this year. A senior Wall Street figure who’s worked for years with the core players estimates they account for roughly 70% of hedge fund basis-trade bets.