Hedge funds may now be a bigger risk to Treasuries than China: For years, China was considered the biggest threat to the US Treasury market, as China’s official Treasury holdings grew to as large as $1.3 trillion in 2013, or 14% of the total. This proportion, however, has steadily declined since then, to ~2%, its lowest since 2001. Meanwhile, hedge funds now account for ~9% of all Treasuries outstanding, more than double their level seen in 2013. Hedge funds now hold ~$2.6 trillion of Treasuries, with their gross exposure at ~$4.0 trillion, which includes short positions. More importantly, these positions are increasingly debt-financed, with hedge fund repo cash borrowing surging to ~$3.0 trillion, more than doubling since early 2023. This makes the Treasury market more vulnerable to forced selling, since a rise in yields can trigger margin calls for these leveraged funds, forcing them to sell Treasuries to raise cash and reduce their debt. Hedge funds have become a major force in the Treasury market.(The Kobeissi Letter)