Treasury bonds are supposed to be the safest asset on Earth, but hedge funds have turned them into high-risk gambling tools.
March 24, 2026
Original Paper
Hedge Funds, Leveraged Finance and Safe Assets: A Look Through the Lenses of the Repocalypse
SSRN · 6393299
The Takeaway
Relative-value trading strategies have linked the safest government debt to the riskiest corporate credit markets. This 'leveraged finance complex' means that the world's most stable market now regularly faces systemic liquidity crises previously seen only in junk bonds.
From the abstract
The article examines the deep entanglements between hedge funds, leveraged finance, and the U.S. Treasury market. It revisits the long history of hedge fund speculation in sovereign debt, focusing on the rise of relative-value strategies that have turned safe assets into engines of leveraged speculation and absolute returns. It shows how top hedge funds' market power derives less from their size (AUM) than from their capacity to gain leveraged exposures to markets through derivatives, repos, and