U.S. Treasury market is relying more on hedge funds
Hedge funds have significantly increased their holdings of U.S. Treasury bonds, now accounting for 7% of the market. Experts warn that this shift could increase systemic risk due to the high leverage used by these firms.
Why it matters
The reliance on hedge funds for government debt financing could lead to market instability and liquidity crises during periods of economic stress.
Hedge funds are becoming a force to be reckoned with in the roughly $30 trillion U.S. Treasury market, stepping in at a time when some traditional long-term investors have been looking at other options.
The shift is helping the government find buyers as its pile of debt grows, but it may also be making the world's largest bond market more vulnerable, experts told CNBC.
Hedge funds' cash Treasury holdings reached $2 trillion at the end of 2025 , nearly three times their level five years earlier, the U.S. Treasurys Office of Financial Research said last month. Marketable Treasury debt — which is traded in the secondary market — was $28.9 trillion, putting hedge funds' share at a record 7%.
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