The Federal Reserve Board published a note on large hedge funds' U.S. Treasury activity that breaks down their USD 2.4 trillion in long Treasury exposure across seven strategies and uses. The main finding is that highly leveraged arbitrage trades dominate these positions, with the Treasury cash-futures basis trade and swap spread arbitrage together accounting for nearly half of long exposure as of September 2025. Over the same period, gross Treasury exposures reached USD 4.0 trillion, comprising USD 2.4 trillion long and USD 1.6 trillion short, while hedge funds' Treasury holdings rose from about 4.5 percent to about 8.5 percent of total privately held Treasuries since the beginning of 2023. The largest identified strategy was the cash-futures basis trade at about USD 830 billion, or 35 percent of long Treasury exposure, roughly double its early 2020 peak. Swap spread arbitrage reached about USD 305 billion, or 13 percent, after about USD 60 billion unwound in April 2025 and a further USD 40 billion in May following the tariff announcements, before returning to pre-stress levels by September 2025. Other exposures included maturity-matched trades at USD 395 billion, steepener-like trades at USD 375 billion, unencumbered cash holdings at USD 245 billion, flattener-like trades at USD 175 billion and long-only investment uses at USD 70 billion. Repo borrowing rose to USD 3.0 trillion, and the top 50 funds accounted for about 90 percent of total gross Treasury exposure. The note says the decomposition is built from monthly SEC Form PF data and should be treated as an approximation because the filings do not provide trade-level positions. It presents the framework as a basis for ongoing monitoring of hedge fund Treasury activity and its implications for Treasury market functioning.
Federal Reserve Board2026-06-22
Federal Reserve Board note finds leveraged arbitrage drives nearly half of hedge funds' USD 2.4 trillion long Treasury exposure
The Federal Reserve Board published a note finding that leveraged arbitrage strategies account for nearly half of large hedge funds' USD 2.4 trillion in long U.S. Treasury exposure as of September 2025. It estimates the cash-futures basis trade at USD 830 billion and swap spread arbitrage at USD 305 billion, alongside gross Treasury exposure of USD 4.0 trillion and repo borrowing of USD 3.0 trillion. The note also shows hedge funds' Treasury holdings rising to about 8.5 percent of privately held Treasuries, with activity heavily concentrated in the largest funds.