Washington has grown used to hedge funds buying its debt, even though those purchases depend on trades that can become less attractive.

Hedge funds held an estimated $2 trillion in cash US Treasuries at the end of 2025, or about 7% of the marketable debt outstanding, according to the Office of Financial Research.

Much of that buying is tied to trades designed to earn small differences between bond and derivatives prices, which makes the funds great customers for Washington but hardly the kind of investors who buy government debt and forget about it for 30 years.

That's because hedge funds can own fewer bonds even while pursuing essentially the same business. Dallas Federal Reserve research published Oct. 16 found that alternatives to the cash-futures basis trade have become more attractive and, crucially, that reallocating a fixed amount of risk capital to those alternatives can produce a much smaller Treasury position.

That means that the government needs other investors to buy the securities that hedge funds no longer want to finance, potentially at higher yields.

The research lays out a different problem from the familiar story of leveraged investors dumping bonds in a crisis.

One involves managers deciding that borrowed money earns more elsewhere, while the other involves lenders or clearing arrangements demanding cash before a fund can obtain it. Both can affect Treasury prices and dollar funding, but only the second necessarily involves a scramble for liquidity that could spill into Bitcoin and other assets.

Hedge-fund balance sheets show expanding gross assets and broker financing in the second quarter of 2026, another reason not to treat a single Treasury strategy as a complete measure of funds’ borrowing.

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