U.S. Treasury basis trade volume falls to more than two-year low; shrinking arbitrage spreads may reflect firm demand for Treasuries.

A popular trading strategy in the U.S. Treasury market has shrunk to its lowest level in more than two years. Wall Street strategists believe this reflects fewer price dislocations in the bond market, which has narrowed the arbitrage opportunities available to hedge funds. The strategy, known as the "basis trade," helps boost demand for U.S. Treasuries and provides liquidity to the roughly $32 trillion market.