Rollover & basis
How does arbitrage failure occur during high-volatility liquidity shocks, causing basis spreads to widen massively?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Arbitrage failure happens when extreme volatility, funding stress, or margin constraints prevent traders from executing the trades needed to close a futures-cash basis gap, widening the spread.
How it works
During liquidity shocks like March 2020, capital constraints and risk aversion stopped arbitrageurs from exploiting mispricing, causing unusually wide and persistent basis spreads temporarily.
An example
Treasury basis trades blew out during the 2020 crisis.
Risk & limitations
Arbitrage is not risk-free, especially under funding stress.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.