According to regulators including the Federal Reserve and Bank of England, hedge funds have accumulated a record $6.6 trillion in leverage to finance bets on U.S. Treasuries, with short positions in Treasury futures reaching historic extremes. The IMF's April 2026 report flagged that some hedge funds have become "systemically important," meaning individual stress could destabilize the broader financial system. Torsten Slok, chief economist at Apollo Global Management, warned that a forced unwind could transmit "shockwaves" through fixed-income markets.
Hedge funds now control 8% to 10.3% of the $31 trillion U.S. Treasury market, primarily through the "basis trade" arbitraging price gaps between futures and cash. The leverage is financed through repurchase agreements and prime brokerage deals, often with zero collateral requirements, making positions extremely sensitive to rate hikes or margin calls. Prime brokerage borrowing has reached $3.2 trillion, doubling since 2022.
