Hedge funds hold a record 7% of marketable US government debt — CNBC
In the United States, hedge funds held $2 trillion in Treasury securities at the end of 2025. This accounted for a record 7% of marketable government debt traded on the secondary market. According to CNBC, the volume of such assets held by hedge funds has nearly tripled over five years.
The volume of US Treasury debt traded on the secondary market stood at $28.9 trillion. Hedge funds remained net buyers of US government bonds in the first half of 2026 as well: in the second quarter, they made net purchases of $60.6 billion in securities, following $26.4 billion in the first quarter. Total net purchases over the half-year reached about $87 billion.
Changing buyer structure
Traditional buyers of long-term government bonds have been pension funds, for which such assets helped match investments with long-term liabilities. At the same time, the Organisation for Economic Co-operation and Development notes that the transition from defined-benefit pension plans to defined-contribution plans is reducing funds’ interest in long-term government securities.
Some pension funds are also increasing investments in higher-yielding but less liquid assets, including private credit. According to Mercer estimates, institutional investors invested about $300 billion in private credit vehicles in 2025.
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Leverage risks
In its May financial stability report, the Federal Reserve noted that hedge fund leverage remained close to record levels and was concentrated in large funds. The regulator warned that high leverage could lead to risk spillovers if a fund suddenly loses access to funding. The Bank for International Settlements also warned that hedge funds’ reliance on leverage and short-term repo funding could increase the vulnerability of government bond markets.
A significant share of hedge fund operations is linked to basis trading between cash-market Treasury securities and futures. Funds buy bonds and sell corresponding futures contracts, expecting to profit from a small price difference. Repo transactions make it possible to build positions that significantly exceed funds’ own capital.
According to Morgan Stanley estimates, the volume of leveraged basis-trade positions declined by about 20% this year, to $1.2 trillion. At the same time, experts note that active hedge fund trading can support market liquidity both when prices rise and when they fall. The risk lies in the possibility of a rapid unwinding of positions during a period of sharp volatility.
