Hedge funds have climbed to a record share of the roughly $30 trillion U.S. Treasury market, CNBC reported, becoming an increasingly important source of demand as some traditional long-term investors pull back.
Data from the U.S. Treasury’s Office of Financial Research show that, by the end of 2025, hedge funds held $2 trillion in cash U.S. Treasuries. That was about three times the level from five years earlier and represented 7% of the $28.9 trillion tradable Treasury market, a record high.
Net buying continued in the first half of 2026
Latest Federal Reserve data show that U.S.-domiciled hedge funds were still net buyers of Treasuries in the first half of 2026. They bought $26.4 billion in the first quarter and $60.6 billion in the second quarter, for a combined total of about $87 billion.
Investor mix is shifting as pension demand weakens
As hedge funds add exposure, traditional long-term investors such as pension funds have been cutting demand for long-dated Treasuries. The Organisation for Economic Co-operation and Development said the move from defined benefit pension systems to defined contribution plans, along with rising pension allocations to higher-yielding and less liquid assets such as private credit, has changed the investor structure of the Treasury market.
In 2025, institutional investors put nearly $300 billion into private credit vehicles.
Basis trades and leverage draw scrutiny
One of the main hedge fund strategies in Treasuries is the basis trade between cash bonds and futures: buying cash Treasuries and selling corresponding futures to capture a small price gap. Because the profit margin is thin, the trade usually relies on repo financing and can involve leverage of 20 times or more.
Morgan Stanley estimated that, as the Treasury selloff intensified, related leveraged positions fell about 20% this year to $1.2 trillion.
Regulators warn about forced selling
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 sales, and rapid deleveraging during periods of rising market volatility. That could create a self-reinforcing cycle between falling prices and worsening liquidity.
At the same time, the report noted that frequent hedge fund trading can also provide two-way liquidity to the market and help correct pricing dislocations. Their role in the Treasury market, then, carries both liquidity support and systemic risk.