Hedge Funds Reach Record 7% Share of U.S. Treasury Market

Hedge funds held a record 7% of the tradable U.S. Treasury market at the end of 2025, increasing their influence over liquidity and raising the risk that leveraged positions could unwind quickly during volatility.

Their cash Treasury holdings reached $2 trillion, roughly triple the level of five years earlier, against a $28.9 trillion tradable market. U.S. hedge funds continued buying in the first half of 2026, with net purchases of $26.4 billion in the first quarter and $60.6 billion in the second.

A major strategy is the basis trade, which buys cash Treasurys while selling related futures to capture small price differences. The trade often relies on repurchase financing and can use leverage of 20 times or more. Positions tied to the strategy have declined about 20% this year to $1.2 trillion as Treasury selling intensified.

That leverage and reliance on short-term funding can expose the market to margin calls, forced sales and worsening liquidity. Hedge fund trading can also provide two-way liquidity and reduce pricing gaps, leaving the funds with both a stabilizing role and a potential source of market stress.

Meanwhile, pension demand for long-term Treasurys has weakened as retirement systems shift away from defined-benefit plans and institutions increase allocations to private credit, which drew nearly $300 billion in 2025.