That pile now covers a record 7% of the US$28.9 trillion marketable Treasury market
Hedge funds held US$2tn in cash US Treasuries at the end of 2025, nearly three times their level five years earlier.
CNBC reported that the US Treasury's Office of Financial Research put marketable Treasury debt, the portion traded in the secondary market, at US$28.9tn, which makes the hedge fund share a record 7 percent.
US Federal Reserve data shows domestic hedge funds remained net buyers through the first half of 2026, purchasing a net US$60.6bn in the second quarter after US$26.4bn in the first, bringing first-half buying to about US$87bn.
The shift is helping the US government find buyers as its debt pile grows, CNBC reported, while potentially making the world's largest bond market more vulnerable.
According to CNBC, the 10-year yield surged to its highest level since 2007 on Monday and the 30-year to its highest since 2002 on Tuesday.
Pension funds have traditionally bought long-dated government bonds because extended investment horizons allow them to match assets against liabilities stretching decades ahead.
The OECD said structural changes, including the migration from defined benefit plans that promise a predetermined payout to defined contribution plans whose value depends on investment returns, are reducing that interest.
According to Mercer, Institutional investors put close to US$300bn into private credit vehicles in 2025.
Noah Hamman, founder of AdvisorShares, told CNBC that most pension plans and insurers have "long term time horizons" and focus on "liability matching."
Hedge funds focus on performance, he said, typically over a shorter term and on "high watermarks and benchmark-beating returns."
Much of the activity involves relative-value strategies, the most prominent being the Treasury cash-futures basis trade, in which funds buy cash Treasuries while selling corresponding futures and expect to gain from the price difference between the two markets.
Because that differential is typically tiny, funds use substantial leverage, borrowing against Treasury collateral in the repo market to build positions many times larger than their underlying capital.
Leveraged basis-trade positions have fallen about 20 percent this year to US$1.2tn, according to Morgan Stanley estimates cited by CNBC.
"These trades have thin margins and can often be levered 20 times, if not higher," said Don Steinbrugge, founder and CEO of Agecroft Partners, speaking to CNBC.
He pointed to March 2020, when Treasury liquidity deteriorated sharply and leveraged funds were forced to unwind positions quickly, creating what he described as a cycle of margin calls, forced selling and further volatility.
The US Federal Reserve said in its May financial stability report that hedge fund leverage remained near record highs and was concentrated among large funds.
"High leverage can lead to spillovers if the fund suddenly loses access to funding," the Fed said.
The Bank for International Settlements warned earlier this year that the rise of hedge funds as core intermediaries in government bond markets had created "new financial stability vulnerabilities."
Ken Heinz, president of Hedge Fund Research, told CNBC that funds' willingness to trade rather than hold bonds to maturity can provide two-sided liquidity during both rallies and sell-offs, which could ultimately stabilize rate moves and reduce volatility.
"Regulators should be concerned about the potential for a disorderly unwind while weighing the benefits of market liquidity that hedge funds provide when making policy decisions," Steinbrugge said.
