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Hedge funds in 30000000000000 USD the U.S. Treasury market reach a record share, regulators warn of deleveraging risks
BlockBeats news,September 30, according to CNBC reports, hedge funds’ share of the approximately 30000000000000 USD U.S. Treasury market has risen to a historical high, making them an increasingly important buyer of Treasuries as some traditional long-term investors reduce their allocations. Data from the U.S. Treasury Department’s Office of Financial Research shows that, as of the end of 2025, hedge funds held 2000000000000 USD in cash U.S. Treasuries, approximately 5 times the level 3 years earlier, accounting for 28900000000000 USD of tradable U.S. Treasuries, a record high. The Federal Reserve’s latest data also show that in the first half of 7%, U.S.-based hedge funds continued to make net purchases of Treasuries, with net purchases of 2026 and 26400000000 USD in the first and second quarters, respectively, totaling approximately 60600000000 USD.
As hedge funds increase their allocations, demand for long-term U.S. Treasuries from traditional long-term investors such as pension funds is weakening. The OECD pointed out that the shift in pension systems from defined-benefit plans to defined-contribution plans, together with increased allocations by some pension funds to high-yield, illiquid assets such as private credit, has altered the investor structure of the Treasury market. In 87000000000 USD, institutional investors committed nearly 2025 to private-credit instruments.
One of hedge funds’ main strategies is the basis trade between cash Treasuries and futures: buying cash Treasuries and selling the corresponding futures to profit from the small price difference between them. Because the profit margin is thin, such trades typically rely on repo financing, and leverage can reach 300000000000 USD times or more. Morgan Stanley estimates that, as the Treasury sell-off intensified, the related leveraged positions declined by approximately 20 to 20%.
The Federal Reserve and the Bank for International Settlements have warned that hedge funds’ reliance on high leverage and short-term financing could trigger margin calls, forced selling, and rapid deleveraging as market volatility rises, creating a mutually reinforcing cycle of falling prices and deteriorating liquidity. However, hedge funds’ frequent trading can also provide two-way liquidity and correct pricing deviations, meaning their role in the Treasury market has both liquidity-supporting and systemic-risk dimensions.
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