Hedge funds have become an increasingly important presence in the roughly $30tn US Treasury market, helping absorb government debt as traditional long-term investors reduce their exposure, but their growing role is also raising concerns about leverage and market stability, according to a report by CNBC.

The report cites data from the US Office of Financial Research as showing that hedge funds held about $2tn of cash Treasuries at the end of 2025, almost three times their holdings five years earlier. With marketable Treasury debt standing at $28.9tn, hedge funds accounted for a record 7% of the market.

More recent Federal Reserve data indicates that their appetite continued into 2026. Domestic hedge funds bought a net $60.6bn of Treasuries during the second quarter, up from $26.4bn in the first three months of the year, taking net purchases for the first half to roughly $87bn.

The increased participation comes as the Treasury market faces renewed pressure. The 10-year yield reached its highest level since 2007 on Monday, while the 30-year yield climbed to its highest since 2002 the following day.

The changing investor base is particularly significant for longer-dated government debt. Pension funds have traditionally been major buyers of long-term Treasuries because their lengthy investment horizons allow them to match bond holdings with liabilities extending decades into the future.

However, structural changes in the pensions industry, including the shift from defined-benefit schemes towards defined-contribution arrangements, have reduced the incentive for some pension investors to maintain large allocations to long-duration government bonds, according to the OECD.

Some institutional investors are also increasing allocations to higher-yielding and less-liquid assets, including private credit. Pension funds invested almost $300bn in private credit vehicles during 2025, according to Mercer.

Hedge funds, meanwhile, approach Treasuries with a very different investment horizon. Rather than primarily holding bonds to match liabilities, they are generally seeking returns from trading strategies and relative-value opportunities.

Regulators have increasingly focused on the potential risks associated with the sector's growing Treasury exposure. The Federal Reserve said in its May financial stability report that hedge fund leverage remained close to record levels and was concentrated among larger managers, with leveraged strategies supporting substantial positions in Treasuries and other financial markets.

The central bank warned that high leverage could generate spillover effects if funds suddenly lost access to financing.

The Bank for International Settlements has similarly highlighted the growing role of hedge funds as intermediaries in government bond markets, arguing that reliance on leverage and short-term repo financing could leave core markets more vulnerable to abrupt deleveraging.