Hedge funds' share in the $30 trillion US Treasury market hits record high, regulators warn of deleveraging risks.

BlockBeats news, September 30 — According to CNBC, hedge funds' share of the roughly $30 trillion U.S. Treasury market has risen to a record high, making them an increasingly important buyer in the Treasury market as some traditional long-term investors reduce their allocations. Data from the U.S. Treasury Department's Office of Financial Research shows that by the end of 2025, hedge funds held $2 trillion in cash U.S. Treasuries, about three times the level five years earlier, accounting for 7% of the $28.9 trillion in tradable U.S. Treasuries, a record high. The latest Federal Reserve data also shows that in the first half of 2026, U.S.-based hedge funds continued to net buy U.S. Treasuries, with net purchases of $26.4 billion and $60.6 billion in the first and second quarters respectively, totaling about $87 billion.

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 noted that the shift in pension systems from defined benefit plans to defined contribution plans, as well as some pension funds' increased allocation to high-yield, illiquid assets such as private credit, have both changed the investor structure of the U.S. Treasury market. In 2025, institutional investors put nearly $300 billion into private credit vehicles.

One of hedge funds' main strategies is the basis trade between cash U.S. Treasuries and futures, namely buying spot U.S. Treasuries and selling corresponding futures to profit from the tiny price spread between the two. Because profit margins are thin, such trades typically rely on repo financing, with leverage that can reach 20 times or even higher. Morgan Stanley estimates that as the U.S. Treasury selloff intensified, related leveraged positions have fallen by about 20% this year to $1.2 trillion.

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 when market volatility rises, creating a loop in which falling prices and deteriorating liquidity reinforce each other. However, hedge funds' frequent trading can also provide two-way liquidity to the market and correct pricing distortions, so their role in the U.S. Treasury market has both liquidity-supporting and systemic-risk dimensions.