No. of Recommendations: 14
This is news to me. Scary news.
nytimes.com - Ezra klein podcast robin wigglesworth[The following is part of a long interview. The boldface text is Ezra Klein of the New York Times. The regular text is Robin Wigglesworth of the Financial Times.]
...
The Treasury market has, at the same time, grown enormously over the past decade.
And we’ve seen hedge funds step into the breach. But it has meant that the Treasury market has become increasingly beholden to hedge funds. I think it has gone from around 2 percent to close to 8 percent. So officially now, hedge funds own more of the Treasury market than Japan and China and Saudi Arabia combined, and that’s a huge change.
Normally, that doesn’t matter that much because you want a diverse ecosystem, and hedge funds are playing an important role in the Treasury market — a valuable role, I’d even say. But they are also very leveraged. They borrow money to hold these Treasury bonds.
So let’s say you put down $10 million, or certainly $100 million. You can buy a billion dollars’ worth of Treasuries.
If suddenly, the cost of your leverage, your borrowing, goes up, then you’re just shaken out of that trade. That is something that policymakers — Janet Yellen has talked about this before. I’m sure Scott Bessent is aware of this issue. I think this is one of the reasons they backtracked quite quickly when the bond market started quivering a bit after Liberation Day, in April 2025. But it is definitely one of the biggest fault lines running through the financial system right now, potentially.
The concern here is that hedge funds, when they’re leveraged, compared to the way pension funds act or the way other central banks act, things can happen that require them to move much faster to keep themselves from going under.
So you could have correlated sell-offs of Treasuries happening very, very quickly in a way that would not be typical of the way central banks act under pressure. [end quote]
A sell-off of Treasuries would cause a spike in interest rates. [Because bond prices and yields move inversely.]
The yield of the Treasuries is already up to the bond market and out of the hands of the Fed and Treasury. But the federal debt is so high that Treasury is constant borrowing money via Treasury auctions. A sudden spike in long-term Treasury yields due to speculators could saddle the government with unplanned high-interest debt.
Wendy (never a fan of leveraged speculators)
