Hedge funds held a record 7% of tradable US Treasurys at the end of 2025, in a market worth roughly $30 trillion, according to the Office of Financial Research (OFR), a Treasury Department unit. OFR put their cash Treasury holdings at $2 trillion, almost triple the level five years earlier. The shift comes as pension funds reduce demand for long-dated government bonds while pensions move away from fixed payouts, a trend identified by the Organisation for Economic Co-operation and Development (OECD). Domestic hedge funds bought a net $87 billion of Treasurys in the first half of 2026, Federal Reserve data shows. A central strategy is the cash-futures basis trade, in which funds buy Treasurys and sell matching futures to capture a small price difference. Because the spread is narrow, funds often use substantial borrowing through repurchase agreements, or repos (short-term loans backed by securities). Don Steinbrugge, founder and chief executive of Agecroft Partners, said basis trades are often levered 20 times or more and that a sharp deterioration in Treasury liquidity, as seen in March 2020, can force rapid unwinding. Higher volatility can trigger margin calls (demands for additional cash), prompting funds to sell Treasurys and potentially adding pressure to prices and other leveraged investors. The Federal Reserve said in its May report that hedge fund leverage remained near record highs and was concentrated among large funds, while the Bank for International Settlements (BIS), which serves central banks, issued a similar warning earlier this year. The 10-year yield above 5% reached its highest level since 2007 on Monday, and the 30-year yield reached its highest since 2002 on Tuesday. Morgan Stanley estimates leveraged basis-trade positions have nevertheless shrunk by about a fifth this year to $1.2 trillion. Ken Heinz, president of Hedge Fund Research, said active trading provides liquidity during both rallies and sell-offs and could ultimately moderate rate swings. The same funds that support trading in calmer conditions could become forced sellers during a rout, leaving rising yields and margin calls to test whether they can maintain their positions.