Hedge funds held an estimated $2 trillion in U.S. Treasury securities at the end of 2025, equivalent to about 7% of marketable government debt. But research from the Federal Reserve Bank of Dallas suggests that a shift toward alternative interest-rate strategies could allow funds to pursue similar risk-adjusted returns while holding substantially fewer bonds.
That possibility matters for the U.S. government because hedge funds are major buyers of Treasuries, even though much of their activity is linked to leveraged relative-value trades rather than long-term investment. If those funds reduce their Treasury positions, other buyers may need to absorb the supply. The adjustment could occur through lower bond prices and higher yields rather than through a disorderly market selloff.
According to CryptoSlate, the issue is not simply whether hedge funds are selling government debt. It is also how much Treasury exposure they need to maintain a given amount of trading risk, and whether their financing remains available during periods of market stress.
Why hedge funds own so many Treasuries
One of the main strategies is known as the cash-futures basis trade. A fund buys Treasury bonds and sells Treasury futures when it sees a price difference between the two instruments. The bond purchase and futures sale are intended to offset much of the fund’s exposure to general interest-rate movements, leaving the potential return tied mainly to the relationship between the prices.
The bonds are commonly financed through repurchase agreements, or repo. In a repo transaction, the Treasury acts as collateral for short-term borrowing. The fund supplies a portion of the purchase price itself, while the lender provides the rest. That portion is known as the haircut, and a higher haircut requires the fund to contribute more cash or collateral.
For example, a hypothetical $100 million Treasury position financed with a 2% haircut would require $2 million from the fund, before futures margin and other costs. If the haircut increased to 4%, the lender would provide $96 million rather than $98 million, forcing the fund to find another $2 million, pledge additional collateral or sell assets.
Federal Reserve-based estimates show the scale of these positions. The cash-futures basis position increased from $213 billion in January 2023 to $832 billion in September 2025. Over the same period, estimated swap-spread positions rose from $42 billion to $305 billion. Together, the two strategies represented about $1.14 trillion, or 47%, of the $2.4 trillion in total long Treasury exposure reported for large hedge funds in September 2025.
The figures are estimates and cover different measures and observation dates. They should not be added to the $2 trillion estimate as separate piles of securities.
A substitute strategy could require fewer bonds
The Dallas Fed research, published on Oct. 16, examined swap-spread trades as an alternative to the traditional basis position. In this strategy, a fund buys a Treasury and enters an interest-rate swap in which it pays a fixed rate and receives a floating rate. The position can benefit when swap rates rise relative to Treasury yields.
The key difference is the amount of bond exposure needed for a given risk allowance. A swap-spread position can carry more dollar risk for each dollar of notional exposure than a basis trade. As a result, a manager allocating the same amount of risk capital may need to hold fewer Treasuries.
In a simplified example, suppose a manager is prepared to tolerate a $10 million loss under a particular stress scenario. If a basis position could lose 1% of its bond notional, that risk budget would support $1 billion in Treasuries. If the comparable swap-spread position could lose 2%, the same risk budget would support only $500 million.
This does not mean that funds are necessarily leaving the Treasury market. They may continue operating relative-value strategies while borrowing less against government bonds. For the Treasury market, however, the result could still be lower demand from an important group of buyers.
The Dallas Fed researchers also found that higher yields have reduced the value of the delivery option embedded in some longer-maturity Treasury futures contracts. Futures sellers can choose among eligible bonds to deliver, but those bonds have become more similar in certain contracts, making that flexibility less valuable.
The paper also identified interest-rate exposure connected to AI data-center financing as a plausible alternative source of long-duration exposure, although the available evidence does not quantify how much Treasury futures demand it may have replaced.
April data show strategies can move differently
The alternative trade is not free from financing risk. During the April 2025 tariff episode, estimated swap-spread exposure fell from $295 billion to $237 billion, a 20% contraction. Basis exposure moved in the opposite direction, increasing from $725 billion to $829 billion before easing to $798 billion in May.
That divergence challenges the idea that every hedge-fund Treasury strategy would be forced to unwind at the same time. Monthly estimates cannot capture all intramonth trading or distinguish forced selling from an ordinary portfolio change, but they show that different strategies can respond differently to market conditions.
The basis estimate also fell from $429 billion in February 2020 to $312 billion by the end of March that year, a 27% decline during the pandemic-era Treasury market disruption. By September 2025, the estimate had recovered to $832 billion, below its June peak of $894 billion.
A reduction in hedge-fund demand could be absorbed by pension funds, overseas investors, banks, households or stablecoin issuers. Stablecoin companies such as Tether and Circle buy government securities to support dollar tokens, including Circle’s USDC, but their demand is concentrated in short-term Treasury bills and cannot automatically replace buying of longer-maturity debt.
The more severe risk would arise if several financing pressures appeared together: lenders demanded more collateral, futures positions generated margin calls or repo funding was not renewed. Funds needing cash could then sell liquid assets into a market where dealers were reluctant to expand inventories. That mechanism can affect Treasury prices and other markets, but a simultaneous decline in Bitcoin would not by itself prove that Treasury trading caused it.
Current market picture
Moneyiar market data recorded at about 22:38-22:39 on Oct. 25, 2026, showed mixed performance among the tracked assets:
- EDGE was $0.3244313833, up 0.81% over 24 hours and 13.63% over seven days.
- NEX was $0.0000006151, up 1.61% over 24 hours but down 13.97% over seven days.
- ORDI was $3.5491459276, down 1.40% over 24 hours and 2.54% over seven days.
- AKE was $0.031015752, up 0.80% over 24 hours and 2.50% over seven days.
These figures describe the tracked crypto assets at the stated time and do not establish a connection between their movements and hedge-fund Treasury positioning.
