Hedge funds held $2 trillion in cash Treasury holdings at the end of 2025, nearly three times their level five years earlier, representing a record 7% share of the $28.9 trillion marketable Treasury debt market. Their growing presence comes as traditional long-term buyers such as pension funds are reducing their allocations to government bonds. The Federal Reserve and the Bank for International Settlements have warned that hedge funds’ high leverage could amplify market stress if forced deleveraging occurs. While hedge funds remained net buyers of Treasurys in the first half of 2026, their leveraged basis-trade positions have declined approximately 20% this year to $1.2 trillion, according to Morgan Stanley estimates.
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