The Financial Stability Board (FSB) is preparing to launch a public consultation on improving transparency around leveraged hedge fund positions in sovereign bond markets, as regulators seek to address data gaps that could obscure systemic financial risks, according to a report by Bloomberg.

The initiative, led by Bank of England governor Andrew Bailey through the FSB's Non-Bank Data Task Force, will focus on developing consistent measures of hedge fund leverage, particularly in the basis trade. The strategy typically involves exploiting price differences between government bonds and related futures contracts, often using substantial borrowing to generate returns.

The task force had originally aimed to publish findings by mid-2026, but progress has been delayed by inconsistent definitions, limited data availability and legal restrictions on cross-border information sharing. A consultation expected in the coming weeks will seek industry feedback on developing practical reporting measures, with the process likely to extend into 2027.

Regulators are particularly concerned about the use of complex off-balance-sheet structures and the fragmentation of hedge fund financing across multiple prime brokers. While individual banks can monitor their own exposures, no single institution necessarily has a comprehensive view of a fund's aggregate leverage or trading activity.

The Central Bank of Ireland has also highlighted limitations in existing reporting frameworks, warning earlier this year that data gaps prevent authorities from reliably identifying sovereign bond basis trades undertaken by Irish hedge funds.

The FSB said improving information sharing between jurisdictions remains central to its efforts to strengthen oversight of non-bank financial institutions. However, the challenges have delayed plans to examine other potential sources of systemic risk, including private credit, with further work on those markets now unlikely to begin before 2027.