BOE Warns $13 Trillion Hedge Fund Sector Raises Bond Shock Spillover Risk
Updated
Updated · CNBC · Oct 18
BOE Warns $13 Trillion Hedge Fund Sector Raises Bond Shock Spillover Risk
3 articles · Updated · CNBC · Oct 18
Summary
Sarah Breeden said hedge funds now play a larger role in core government bond markets, making a shock in one market more likely to spread across others.
Leverage is central to the risk: Breeden said hedge funds are price-sensitive, leveraged and international, while the IMF this week warned crowded trades can amplify turmoil and hit banks' prime brokerage businesses.
7% of the $30 trillion Treasury market was held by hedge funds at the end of 2025, with basis trades drawing scrutiny because funds use heavy leverage to exploit small gaps between cash Treasurys and futures.
Bond-market strains have already intensified, with 10- and 30-year Treasury yields hitting their highest since 2002, U.K. 10-year gilt yields reaching multi-decade highs, and French OAT yields jumping on fiscal concerns.