Hedge funds take record 7% share of Treasury market

Hedge funds have claimed an unprecedented 7% share of the US Treasury market, totaling a record $2tn in holdings as of the end of 2025. This surge in participation comes as traditional long-term investors, such as pension funds, reduce their exposure to government debt. The increased presence of hedge funds is causing concerns about leverage and market stability, according to CNBC.

With marketable Treasury debt standing at $28.9tn, hedge funds now account for a record 7% of the $30tn US Treasury market. Recent data from the Federal Reserve shows that hedge funds continued to increase their Treasury purchases in 2026, with net purchases reaching roughly $87bn in the first half of the year, up from $26.4bn in the first quarter.

The growing influence of hedge funds is particularly noteworthy for longer-dated government debt. While pension funds have traditionally been major buyers of long-term Treasuries due to their long investment horizons, structural changes in the pensions industry have led to reduced interest in large allocations to long-duration government bonds. Additionally, some institutional investors are shifting their focus to higher-yielding, less liquid assets, such as private credit.

Regulators have taken note of the risks associated with hedge funds' growing Treasury exposure. The Federal Reserve reported in its May financial stability review that hedge fund leverage remained near record levels and was concentrated among larger managers. They warned that the high leverage could lead to spillover effects if funds suddenly lost access to financing.

The Bank for International Settlements has also highlighted the role of hedge funds in government bond markets, warning that reliance on leverage and short-term repo financing could make core markets more vulnerable to abrupt deleveraging.