Hedge Fund Growth Raises Bond Shock Risk, Bank of England Says
Sarah Breeden says leverage and hedge funds’ growing role in government bond markets raise the risk of wider financial stress.
Key takeaways
- Sarah Breeden warned that hedge funds’ leverage may help spread bond market shocks.
- The IMF put hedge funds’ gross assets at about $13 trillion.
- Hedge funds held a record 7% of the U.S. Treasury market at the end of 2025.
Bank of England deputy governor Sarah Breeden warned that hedge funds’ growing presence in government bond markets has raised the risk of shocks spreading between markets. She cited their leverage and international positions as factors that could widen financial stress.
“The likelihood of a shock in one market transmitting to another is greater than what it was,” Breeden told CNBC during the IMF-World Bank meetings in Bangkok.
The IMF said hedge funds had about $13 trillion in gross assets. It warned that leverage and crowded trades could intensify market stress and spill into wider markets, including banks’ prime brokerage businesses. The fund also recognized hedge funds’ role in supporting liquidity and market efficiency.
Hedge funds held a record 7% of the $30 trillion U.S. Treasury market at the end of 2025, according to U.S. Office of Financial Research data. Their basis trades involve buying cash Treasurys and shorting related futures, often using leverage to boost returns.
The warning comes as 10- and 30-year Treasury yields recently reached their highest levels since 2002. U.K. 10-year gilt yields also touched multi-decade highs, while French government bond yields rose amid concerns about the country’s fiscal outlook.
This article was produced with the help of AI technology. Based on reporting by the outlets listed above.
