Because much of it is held with borrowed money, and margin calls in a selloff can force hedge funds to sell fast. The Bank of England and the IMF both warned in October 2026 that this makes a bond market shock more likely to spread to other markets.
How big it is.
- Hedge funds held about 6.6% of US Treasuries in June 2026, the latest data, close to their record. That is up from 5.9% just before the March 2020 turmoil. The figure is Tigzig's estimate using the Office of Financial Research's method on SEC and CFTC data. The OFR's own figure for the end of 2025 is about 7%.
- Their total repo borrowing, the short-term loans that fund trades like this, reached a record 3.4 trillion dollars in June 2026.
The basis trade. A fund buys Treasuries, sells the matching futures, and borrows to multiply the small price gap between the two. Agecroft Partners puts the borrowing at often 20 times or more. In calm markets this helps, because hedge funds hold Treasuries the big dealers no longer have room for. In a selloff the same leverage works the other way, and the IMF says hedge fund deleveraging added to the stress in the March 2020 Treasury turmoil.
What has eased. The trade has come down about a fifth since December 2025, going by leveraged funds' short Treasury futures in CFTC data, with most of the fall in the first half of 2026. The IMF says the unwind has caused no notable strain in repo markets so far, and that the leverage still in these trades leaves the bond market open to a disorderly unwind.
Where yields are. The US 10-year yield closed above 5% in September 2026 for the first time since 2007 and reached its highest since 2002 in October. Leverage in the bond market is one way a shock there could reach other markets.
Sources: OFR Hedge Fund Monitor (SEC Form PF), CFTC Traders in Financial Futures, the US Treasury, the IMF Global Financial Stability Report of October 2026, and CNBC. Related: what the IMF warned about in October 2026 and is a rising bond yield inflation or the real cost of money? Full analysis with the one-pager: https://www.tigzig.com/post/hedge-funds-treasuries-leverage-oct2026.
Building something like this? How I work covers the rates, the availability and what I take on.