[The scale of U.S. bond basis trading fell to a more than two-year low, and the shrinking arbitrage space may reflect strong demand for U.S. debt] On September 22, the scale of a popular trading strategy in the U.S. Treasury market has fallen to its lowest level in more than two years. Wall Street strategists believe this reflects a reduction in price dislocations in the bond market, narrowing the arbitrage space available to hedge funds. The strategy, known as "basis trading," helps increase demand for U.S. Treasuries and provide liquidity to a market worth about $32 trillion. The approach is usually to take advantage of the tiny price difference between U.S. Treasury bond futures and corresponding cash bonds to amplify the size of the transaction by borrowing large amounts of funds. As these spreads continue to narrow, basis trading is becoming less attractive, potentially depriving the market of an important source of funding. While sudden contractions in liquidity have stoked financial market turmoil in the past, bank strategists including Morgan Stanley and Citigroup say the trade is far from gone and the current cooling is more a reflection of reduced relative value opportunities.