Topic: Capital Markets-Fixed Income & Rates Research
Report type: US Treasury Basis Dislocations and Rates Market Liquidity Stress Report (美债基差异动与利率市场流动性压力研究报告)

Recently, amid a so-called “tariff tantrum,” the US Treasury cash-futures basis widened sharply, with implied repo rates on Treasury futures rising well above comparable SOFR rates, raising concerns about market liquidity and leveraged trading stability. Against this backdrop, please write a deep research report titled "Treasury Basis Dislocations during the Tariff Tantrum: Liquidity Stress or Temporary Mispricing?" and address the following tasks:

1. Review of basis dislocations: Systematically examine the magnitude, duration, and cross-maturity patterns of the recent basis widening across 2-year to 10-year and ultra-long Treasury futures, and compare them with past stress episodes;
2. Mechanisms and market participant behavior: Analyze the key transmission channels behind the sharp basis widening, focusing on hedge fund deleveraging, dealer intermediation capacity, and funding market dynamics, and explain the subsequent normalization;
3. Assessment of market stress and policy implications: Evaluate whether the episode reflects a temporary breakdown in cash-futures arbitrage or signals broader liquidity and structural stress in the US Treasury market, and discuss the implications for rate market stability and risk management.

## Evaluation Criteria for "U.S. Treasury Basis Dislocations Under Tariff Shocks" (Research Report)

This rubric is used to conduct an actionable, quantitative evaluation of the research report "U.S. Treasury Basis Dislocations Under Tariff Shocks". It is compatible with both human review and LLM-based automated scoring. The framework includes **4 primary dimensions and 12 secondary dimensions**, with a total score of **100 points**. It emphasizes “consistent definitions, sufficient evidence, testable mechanisms, and implementable conclusions.”

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### 1. Fact Reconstruction and Measurement Conventions (30 points)

#### (1) Accuracy of definitions for basis and implied repo rate (IRR) (10 points)
- 9–10: Clearly defines **Treasury basis** (price/yield differential between futures net price/dirty price and the deliverable bond/CTD, or an equivalent return differential). Provides an **IRR computation framework** (including coupon/accrued interest, financing cost, delivery date/holding period, conversion factor, and delivery-option effects). Explains the interpretation of **IRR vs SOFR/GC repo**. States the contracts used (e.g., TU/TY/US/Ultra 10Y) and the CTD selection rule.
- 6–8: Definitions are broadly correct, but explanations of CTD/conversion factor/delivery option or accrued-interest treatment are incomplete, reducing reproducibility.
- 0–5: Confuses or mis-defines basis, IRR, and repo rates; conventions are incorrect and cannot support subsequent comparisons or conclusions.

#### (2) Completeness and comparability of cross-tenor reconstruction (10 points)
- 9–10: Covers **2Y–10Y and the ultra-long end (Ultra 10Y)**. Reports widening **magnitude** (bp/price points/IRR minus SOFR spread), **duration**, and **peak/mean-reversion timing**. Explains differences across tenors (e.g., duration, deliverable-basket structure, hedging-demand differences). Maintains consistent conventions and a clear timeline throughout.
- 6–8: Covers major tenors but omits Ultra 10Y or provides insufficient cross-tenor comparison; or relies mainly on qualitative statements without key statistics.
- 0–5: Reconstruction is fragmented, focusing on only a few contracts or isolated dates; fails to form a coherent “event profile.”

#### (3) Benchmarking against historical stress episodes and arguing “similarities/differences” (10 points)
- 9–10: Benchmarks against 2–3 representative historical periods (e.g., **2019 repo stress, the 2020/03 Treasury liquidity crisis, basis disturbances driven by delivery periods/CTD switches**), ensuring consistent measurement conventions. Clearly contrasts this episode with history in terms of **funding conditions** (SOFR/GC, fails, haircut/margin), **intermediation capacity** (dealer balance sheet), and **levered-fund behavior** (HF net positions/open interest), supporting a judgment on whether the event is “systemic.”
- 6–8: References historical episodes but uses few benchmark metrics, inconsistent conventions, or remains largely narrative.
- 0–5: No historical benchmarking, or only subjective analogies such as “looks/doesn’t look like 2020.”

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### 2. Mechanism Explanation and Participant Behavior (30 points)

#### (1) Closed-loop transmission chain and testability (10 points)
- 9–10: Presents a clear closed loop: **tariff shock → volatility/risk appetite shift → changes in funding conditions and margin/haircuts → crowded basis trades and deleveraging → constrained dealer intermediation → wider basis/higher IRR → mean reversion after stabilizing factors emerge**. Each link is supported by observable evidence or proxy variables (e.g., repo spreads, futures OI, CFTC levered-fund net positions, bid-ask spreads/market depth).
- 6–8: Chain is mostly complete, but a key link lacks evidence (common gaps: how funding constraints transmit into futures pricing, or quantitative traces of dealer constraints).
- 0–5: Merely lists possible reasons without causal structure or a verifiable pathway.

#### (2) Hedge-fund deleveraging and basis-trade mechanism (10 points)
- 9–10: Accurately describes the canonical **cash–futures basis trade** (long cash bonds, short futures, repo funding/leverage). Explains sensitivity to **IRR, margin, haircuts, volatility, and funding availability**. Uses data/facts (e.g., changes in levered-fund net positions, futures OI, repo volumes and term structure changes) to argue the marginal contribution of “deleveraging/crowded trades” to basis widening, and explains why the basis later repairs once conditions stabilize.
- 6–8: Mechanism is correct but evidence is thin, or the “why it normalizes” trigger is not explained.
- 0–5: Gets the deleveraging–basis relationship backwards/incorrect, or stays at slogan level.

#### (3) Dealer intermediation capacity combined with funding-market dynamics (10 points)
- 9–10: Jointly explains **dealer balance sheet costs/constraints** (e.g., balance sheet usage, directionality of regulatory constraints, risk limits) and **funding conditions** (SOFR, GC, term repo, specialness, fails, auction/settlement-related cash needs). Distinguishes **OTR vs off-the-run** effects and deliverable-basket liquidity differences on basis. Supports the “post-stabilization repair” with evidence consistent with improved intermediation/funding conditions.
- 6–8: Mentions dealer and funding factors but lacks an integrated analysis, or omits key micro-mechanisms (specialness, fails, OTR/off-the-run).
- 0–5: Over-generalizes to “poor liquidity/dealers step away” without specific constraints, indicators, or evidence.

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### 3. Stress-Type Assessment, Policy Implications, and Risk-Management Takeaways (25 points)

#### (1) An operational framework to distinguish “temporary dislocation” vs “structural liquidity stress” (10 points)
- 9–10: Proposes an actionable diagnostic framework with indicators covering at least: **price layer** (basis, IRR–SOFR, abnormal swap spreads/curve spreads), **liquidity layer** (bid-ask, depth, volume/price impact), **funding layer** (repo spreads, specialness, fails, haircut/margin), and **positioning/intermediation layer** (OI, CFTC positioning, dealer-inventory signals). Provides an integrated conclusion and explicit uncertainty boundaries.
- 6–8: Discusses both interpretations but lacks a systematic indicator set or thresholds/benchmarks; persuasion is moderate.
- 0–5: Draws conclusions from a single symptom (e.g., “IRR above SOFR”) without cross-validation.

#### (2) Professionalism of policy implications and market-stability discussion (8 points)
- 7–8: When discussing policy, clearly specifies “tool → channel → side effects”: e.g., potential pathways involving **repo backstop facilities, clearing and trading infrastructure, dealer-making and capital constraints, Treasury issuance and liquidity supply**. Avoids treating policy as a panacea. Identifies concrete vulnerabilities in rates-market stability (e.g., procyclicality of levered trades, margin spirals).
- 4–6: Offers several policy points but lacks transmission mechanisms or discussion of costs/constraints.
- 0–3: Policy discussion is vague, disconnected from basis mechanisms, or clearly unprofessional.

#### (3) Actionability of risk-management implications (7 points)
- 6–7: Provides implementable risk controls covering at least: **funding and margin management (haircut/margin buffers)**, **liquidity reserves and stress-test metrics**, **scenario/sensitivity analysis for basis positions (CTD switches, delivery options, repo specialness)**, and **stop-loss/deleveraging triggers**. Differentiates guidance for hedge funds, dealers, and asset managers/hedgers.
- 3–5: Directionally correct but too principles-based; lacks metric- or process-level specification.
- 0–2: Only generic slogans such as “control risk, reduce leverage.”

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### 4. Data and Methodological Rigor, Presentation, and Reproducibility (15 points)

#### (1) Authority, transparency, and timeliness of data sources (6 points)
- 6: Clearly lists data sources and frequencies (e.g., futures prices and contract specs, deliverables and CTD, SOFR/GC/term repo, trading and liquidity proxies, positioning data), the sample window, and key event dates. Distinguishes primary vs secondary data and potential biases.
- 3–5: Data sources are broadly reliable, but some key fields are missing (e.g., CTD conventions, delivery-date handling) or citations are insufficiently transparent.
- 0–2: Sources are unclear, timestamps are inconsistent, or the analysis relies heavily on unverified narrative.

#### (2) Method disclosure, reproducibility, and robustness checks (5 points)
- 5: Discloses key computation steps (basis/IRR, cashflow treatment, delivery/funding assumptions) and performs at least one robustness check (e.g., alternative funding-rate assumptions, sensitivity to CTD changes, removing extreme quotes/liquidity adjustment). Charts and conclusions are consistent.
- 3–4: Provides partial logic, but key parameters/assumptions are not disclosed, making reproduction difficult.
- 0–2: No method disclosure; conclusions are not verifiable.

#### (3) Report structure, argumentative clarity, and professional writing standards (4 points)
- 4: Clear structure (executive summary → facts → mechanisms → assessment → implications/risk management → appendix). Uses concepts rigorously; charts are fully labeled. Clearly distinguishes facts, inference, and assumptions; conclusions include conditions and limitations.
- 2–3: Readable overall, but terminology is imprecise, chart–text linkage is weak, or conclusion boundaries are unclear.
- 0–1: Disorganized structure; frequent misuse of key concepts undermines readability and credibility.