Portugal

IMF alerts for hedge funds risks in public debt

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Briefings

The FMI warns that hedge fund exposure to U.S. sovereign debt has doubled since 2022, with roughly two-thirds of the increase concentrated in Treasury bonds. By 2025, U.S. Treasury holdings by hedge funds rose from 4% to 9%, driven by leverage and basis trades. While these funds contribute to market liquidity, their reliance on credit and high leverage creates vulnerability to volatility shocks. The report notes that five largest prime brokers serve funds representing about two-thirds of managed assets, and the FMI recommends improved data on leverage, derivatives, and bank relationships to better assess systemic risks.

Key points

• The FMI reports that hedge fund exposure to U.S. sovereign debt has doubled since 2022, with approximately two-thirds of the increase concentrated in Treasury bonds.
• U.S. Treasury holdings by hedge funds increased from 4% in 2022 to 9% in 2025, driven by leverage and basis trades rather than direct purchases.

Context and limitations

The report does not assess specific impacts on Portugal, and data gaps limit policymakers' ability to evaluate vulnerabilities and interconnections involving hedge funds.

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