Who is taking over US debt?

```

Hedge funds have quietly become the largest foreign holders of U.S. Treasury bonds, with holdings that surpass those of China, Japan, and the United Kingdom. This pattern has become increasingly critical in the wake of the Iran war and the withdrawal of traditional overseas buyers, yet inherent vulnerabilities lurk due to its heavy reliance on pure financial logic.

Since the outbreak of the Iran war, yields on 10-year U.S. Treasuries have jumped nearly 50 basis points, multiple Treasury auctions have performed poorly, and market concerns over non-U.S. government sell-offs of U.S. Treasuries have continued to intensify.

According to Federal Reserve custodial data, foreign central banks have cumulatively sold $82 billion in U.S. Treasuries since the outbreak of the war, reducing their holdings to $2.7 trillion, the lowest level since 2012.

However, the buyer truly worthy of attention is not the central banks, but hedge funds registered in the Cayman Islands. By the end of 2025, hedge funds will hold long positions in U.S. Treasuries totaling $2.4 trillion, nearly tripling their holdings from three years ago. Federal Reserve economists believe there is a further $1.4 trillion underestimation.

However, hedge fund holdings are based on pure arbitrage logic, so if interest rate trends or market conditions turn unfavorable, a large amount of funds may simultaneously liquidate and flee, triggering risks to financial stability.

Central bank sell-off of $82 billion, but limited impact

Foreign central bank selling of U.S. Treasuries after the outbreak of the Iran war has attracted widespread market attention.

According to Federal Reserve custodial data, non-U.S. central banks have cumulatively sold $82 billion in U.S. Treasuries, reducing their holdings to $2.7 trillion, a new low since 2012.

However, this scale of selling is still limited in the overall picture. $82 billion is negligible compared to the total stock of U.S. Treasuries, and discrepancies exist between this data and the more authoritative TIC cross-border capital flow statistics.

More importantly, central banks may be selling U.S. Treasuries out of defensive consideration to stockpile foreign reserves during turbulent times rather than out of anti-U.S. sentiment—such as with Poland’s central bank's recent sale of gold, which followed a similar logic.

Hedge funds quietly become the largest foreign holders

Research from the New York Fed shows leveraged hedge funds have dramatically increased their holdings of U.S. Treasuries since 2018. According to the U.S. Financial Research Office, by the end of 2025, hedge funds will hold $2.4 trillion in long Treasury positions and $1.6 trillion in short positions, nearly tripling their positions from three years prior.

This expansion is driven mainly by two types of trades: “basis trades” that arbitrage price differences between futures and spot, and the rapidly expanding “swap trades.”

More surprisingly, Federal Reserve economists believe that official TIC data underestimates hedge funds’ cross-border holdings by as much as $1.4 trillion. After adjustment, “the Cayman Islands is actually the largest foreign holder of U.S. Treasuries, with holdings significantly surpassing those of China, Japan, and the United Kingdom.”

Federal Reserve economists further point out that between 2022 and 2024, hedge funds “absorbed 37% of the net issuance of U.S. medium- and long-term Treasury bonds, nearly equal to the total of all other foreign investors combined.”

Hedge funds’ dual role: stabilizer or risk source

Industry insiders such as Citadel founder Ken Griffin believe hedge fund participation provides valuable liquidity support to the market. During the Fed’s quantitative tightening, their buying effectively eased pressures in the bond market;

However, hedge fund holdings are based on pure arbitrage logic; if interest rate trends or market conditions turn unfavorable, a large amount of funds may simultaneously liquidate and flee, triggering risks to financial stability.

Reportedly, in the early days of the Iran war, some crowded hedge fund positions have already been “washed out,” but the situation has not worsened further. Insurers and other long-term asset holders have not shown significant signs of exit, and the market remains relatively stable.

Regardless of current market response, U.S. Treasury Secretary Scott Bessent faces unavoidable refinancing pressure. Next year, debt equivalent to 33% of the total U.S. Treasury stock will mature, requiring about $10 trillion in new debt issuance.

Risk warning and disclaimerThe market carries risks—invest cautiously. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial circumstances, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their specific situation. Investing accordingly is at your own risk. ```