Leveraged Funds Dominate U.S. Bonds
I had always thought of Japan and the United Kingdom as the currently largest holders of U.S. Treasury securities, essentially the countries to which the U.S. “owes” the most.
However, it now appears that hedge funds registered in the Cayman Islands have become the largest owners of U.S. bonds by a significant margin. Fed numbers show that they accumulated up to 1.8 Trillion USD worth of Treasuries
The difference is crucial: while countries like Japan or the UK tend to invest in these bonds long-term and rely primarily on interest income, hedge funds are mainly engaged in speculative basis trades using massive amounts of leverage. That introduces substantial risk to the bond markets.
If there’s ever a “risk-off” scenario, it could have major implications for financial markets and lead to severe volatility. Keep this on your Watchlist guys!
