Hedge funds have built record-sized leveraged positions in U.S. Treasury securities, according to data cited by Bloomberg and MarketWatch. Apollo's chief economist Torsten Slok is warning that a sudden unwinding of these positions could send shockwaves through the global bond market. The concern centers on how fast and disorderly that unwind could be if conditions force hedge funds to sell simultaneously.
A forced unwind of leveraged Treasury positions would spike bond yields sharply and fast — which pressures nearly every asset class, from stocks to real estate to credit. This is the same basic mechanism that rattled markets in March 2020 and the UK gilt crisis of 2022. Investors holding long-duration bond funds, rate-sensitive equities like utilities and REITs, or broad index funds should treat this as an active tail risk worth monitoring.
Watch for the next U.S. Treasury auction results (typically weekly for short-term bills, monthly for longer-term notes and bonds). Also watch the CFTC Commitments of Traders report released every Friday — it shows how large speculative positions in Treasuries are shifting week to week.
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