Barnegat Hedge Fund Bonds
Barnegat Fund Made One of the Most Successful Trades
The paper details how prices for US Treasury inflation-linked securities – government bonds that provide protection against rising prices – and regular Treasury bonds were thrown out of sync by as much as 23 cents on the dollar following the collapse of Lehman Brothers two years ago this week.
“The arbitrages reported are stunning in magnitude,” the researchers said. “What makes these findings even more dramatic is that the Tips [Treasury inflation-protected securities] and Treasury markets are two of the most liquid and largest financial markets in the world ... The sheer magnitude of this mispricing presents a serious challenge to conventional asset pricing theory.”
The NBER said the arbitrage had narrowed during 2009 to more normal levels. However, for a small group of savvy traders the pricing discrepancies at their widest led to one of the most successful hedge fund trades in recent memory.
One of the biggest beneficiaries was the low-profile New Jersey-based $450m Barnegat fund, founded in 1999.