How the government got hedge funded

This episode of Planet Money discusses the increasing role of hedge funds in the U.S. Treasury market. The hosts, Mary Childs and Kenny Malone, explain how the U.S. government borrows money by selling treasuries, traditionally bought by entities seeking safe investments. However, hedge funds have become significant players, engaging in strategies like the Treasury basis trade to profit from small price differences and meet the needs of money market and index funds. This increased hedge fund activity raises concerns about potential instability in the Treasury market, particularly due to the high levels of borrowing involved and the potential for a "moral hazard" where risky behavior is encouraged by the expectation of government bailouts. The hosts interview Dalip Singh, formerly of the Treasury, and Phil Prince, a hedge fund manager, to explore these dynamics and the potential risks to the broader financial system.