Hedge Funds Hold Record 7% of U.S. Treasury Market

Hedge funds held about $2 trillion of cash U.S. Treasuries at the end of 2025, equal to roughly 7% of the $28.9 trillion marketable Treasury stock, according to data from the U.S. Office of Financial Research. That level was almost three times larger than five years earlier. Federal Reserve data show domestic hedge funds bought a net $26.4 billion in the first quarter of 2026 and $60.6 billion in the second quarter, for about $87 billion of net purchases in the first half of the year. Yields on longer-dated Treasuries have risen alongside the growing hedge fund presence. The 10-year Treasury yield reached its highest level since 2007, and the 30-year yield rose to its highest since 2002. The investor mix in the Treasury market has shifted as some traditional long-term holders reduce allocations to long-duration government debt. The OECD has noted a shift from defined-benefit pension plans to defined-contribution arrangements, which reduces some pensions’ need to match long-term liabilities with long-dated bonds. Separately, Mercer reported pension funds invested nearly $300 billion in private credit vehicles during 2025. Hedge funds generally use Treasuries in different ways than pension funds. Many funds hold Treasuries for trading strategies and relative-value positions rather than to match long-term liabilities. Those trading strategies often involve higher leverage and reliance on short-term financing such as repo. Regulators have highlighted risks tied to larger hedge fund positions in government debt. The Federal Reserve’s May financial stability report said hedge fund leverage remained near record levels and was concentrated among bigger managers, and that leveraged strategies supported substantial positions in Treasuries and other markets. The report warned that a sudden loss of financing could create spillovers. The Bank for International Settlements has pointed to hedge funds’ expanding role as intermediaries in government bond markets and said reliance on leverage and short-term repo financing could make core markets more vulnerable to abrupt deleveraging. With hedge funds now accounting for a record share of marketable Treasury stock, regulators and market participants are monitoring how changes in investor composition and funding practices affect liquidity and stability in the government bond market.