Hedge funds are playing an important role in boosting liquidity by helping to fill a void in European government bond markets created by a reduction in central bank activity in the space, according to a report by Reuters.

The report cites debt agency chiefs from some of the region's biggest issuers as highlighting how hedge funds are taking up the slack with central banks including the European Central Bank and the Bank of England having either reduced their bond-buying or sold bonds.

The report quotes Thomas Weinberg, Head of Trading and Issuance at Germany's debt management agency, as saying during a panel debate at an Association for Financial Markets in Europe's (AFME) conference in Brussels this week, that: "We have seen a rise of hedge fund activity, which may have replaced or surpassed ECB buying for whatever reason to go into the fixed income market."

Weinberg added that hedge funds now account for roughly 40% of the turnover in German securities.