2 articles · Updated · adamtooze.substack.com · Aug 23
Summary
$830 billion in hedge-fund Treasury basis trades by September 2025 nearly doubled the early-2020 peak, with positions reaching 3.5% of privately held Treasuries and heightening unwind risk.
New York Fed research says hedge funds' gross Treasury exposure, repo borrowing and market turnover have all more than doubled since early 2023, driven heavily by leveraged arbitrage strategies.
$2.4 trillion in long Treasury positions included nearly half in basis and swap-spread arbitrage, while the 50 largest funds controlled about 90% of total gross Treasury exposure.
OFR data show the buildup is debt-fueled: hedge-fund repo borrowing rose 154% in 2025 from 2022 and prime-brokerage borrowing climbed 83%, leaving the market vulnerable if returns deteriorate.
The shift matters because private investors—rather than foreign central banks—now absorb much of US Treasury issuance, making a core funding market more dependent on profit-seeking, leveraged buyers.