Hedge Funds Hit Record Leverage on $31 Trillion Treasury Market: Systemic Risk Warning

Quick overview

Hedge funds have taken leverage in the U.S. Treasury market to record levels. They now own about 8% of the $31 trillion market and depend on over $6.6 trillion in repo and prime brokerage loans.

Torsten Slok, Chief Economist at Apollo Global Management, recently pointed out this extreme positioning. Much of it comes from the popular basis trade, where investors arbitrage cash Treasuries against futures contracts using high leverage.

Why This Is Concerning

• If these positions are forced to unwind because of margin calls, sudden volatility, or a reversal in yields, it could “send shockwaves” through global fixed-income markets.
• These risks could spill over into equities, corporate bonds, mortgage-backed securities, and the wider financial system.
• Official data might not show the full extent of the risk, especially for funds based in the Cayman Islands.

This change has happened because traditional buyers, like foreign central banks and domestic institutions, have pulled back. Hedge funds have stepped in with borrowed money to fill the gap. This situation is similar to the stresses seen in 2020 and 2024 to 2025, so the Fed, Treasury, and FSOC are watching it closely.

Hedge fund repo borrowing has surged to a record $3.4 trillion, more than tripling since 2019, as funds increase leverage through short-term financing backed by Treasury collateral. Combined with $3.2 trillion in prime brokerage borrowing from banks, hedge funds now control… pic.twitter.com/uZgVMsCXe2

— Onchain Insights (@OnchainIns5699) April 29, 2026

The Situation in 2026

With U.S. national debt close to $39 trillion and deficits continuing, the world’s biggest debt market is now more sensitive to quick deleveraging. Some analysts think these positions make sense in a high-yield environment, but the heavy use of leverage makes the market more fragile.

There is no immediate crisis, but the record level of leverage is getting more attention because of events like FOMC meetings, global politics, and changes in fiscal policy. If there is a sudden liquidity crunch or a jump in yields, it could cause bigger moves across different asset classes.

Investors and policymakers are watching this crowded trade closely. The combination of extreme leverage and massive debt levels makes the Treasury market a key risk factor to monitor in 2026.

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Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.