Hedge Funds’ Treasury Bets Risk Market Shock, Apollo’s Slok Warns

A buildup of leveraged hedge fund bets in Treasuries has left investors exposed to abrupt position shifts that could amplify stress across global bond markets, according to Apollo Global Management Inc. Chief Economist Torsten Slok.

Hedge funds now own roughly 8% of the entire $31 trillion US Treasury market, according to Apollo calculations, based on the latest data from the Federal Reserve and Office of Financial Research. That’s up from just 3% five years ago. The buildup has been fueled by heavy borrowing, with combined financing via repurchase agreements and prime brokerages now exceeding $6 trillion, Slok said in a Friday blog post.