According to ME News, on September 30 (UTC+8), hedge funds have reached a record-high share in the $30 trillion U.S. Treasury market, becoming an increasingly important buyer as traditional long-term investors reduce their allocations. Data from the U.S. Treasury’s Office of Financial Research shows that by the end of 2025, hedge funds held $2 trillion in cash U.S. Treasuries—three times the level five years ago—accounting for 7% of the $28.9 trillion in tradable Treasuries, a record high. Recent Federal Reserve data also indicates that U.S.-based hedge funds continued to net buy Treasuries in the first half of 2026, purchasing $26.4 billion in Q1 and $60.6 billion in Q2, for a combined total of approximately $87 billion. As hedge funds increase their allocations, demand for long-term Treasuries from traditional long-term investors such as pensions is weakening. The OECD notes that the shift from defined-benefit to defined-contribution pension plans, along with increased allocations by some pensions to higher-yielding, less liquid assets like private credit, has altered the investor structure in the Treasury market. In 2025, institutional investors poured nearly $300 billion into private credit instruments. One of hedge funds’ key strategies is basis trading between cash Treasuries and futures—buying physical Treasuries while selling corresponding futures contracts to profit from small price differentials. Due to thin profit margins, these trades typically rely on repo financing, with leverage ratios reaching 20 times or higher. Morgan Stanley estimates that as Treasury selling intensified this year, related leveraged positions have declined by about 20% 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 funding could trigger margin calls, forced selling, and rapid deleveraging during periods of heightened market volatility, creating a feedback loop of falling prices and deteriorating liquidity. However, hedge funds’ frequent trading also provides two-way liquidity and helps correct pricing inefficiencies, meaning their role in the Treasury market carries both liquidity-supporting and systemic-risk dimensions. (Source: BlockBeats)
Hedge funds hold a record 7% of the U.S. Treasury market as leverage risks are warned.
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Summary
Hedge funds now hold a record 7% of the U.S. Treasury market, totaling $2 trillion as of 2025. Leverage trading has surged, with some funds employing up to 20x leverage in basis trades. Market trends indicate that traditional investors, such as pension funds, are shifting toward private credit. Regulators warn that high leverage and short-term financing could trigger forced selling during periods of market stress.
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