Bank of England deputy governor Sarah Breeden highlighted the growing influence of hedge funds in the global bond markets during an interview with CNBC. She noted that the traditional investors, such as insurance companies and pension funds, are being replaced by hedge funds, which are more price-sensitive and leverage-heavy.
This change increases the risk of localized market disruptions escalating into wider financial stress. The International Monetary Fund (IMF) recently reported that hedge funds now manage approximately $13 trillion in assets, playing a significant role in market liquidity.
However, their use of leverage and tendency for crowded trades could exacerbate market volatility, particularly in the bond markets. Breeden pointed out that hedge funds accounted for a record 7% of the $30 trillion U.S. Treasury market by the end of 2025, raising concerns about their impact on financial stability. The current environment is marked by rising yields on government bonds, with U.S.
Treasury yields reaching their highest levels since 2002, and similar trends observed in the U.K. and France. These developments suggest that the bond market could be a source of shocks, with the potential for spillover effects into broader financial markets and banking sectors