Who is Buying U.S. Treasuries?

Hedge funds have quietly become the largest offshore holders of U.S. Treasuries, with their holdings even surpassing those of China, Japan, and the United Kingdom. This shift has become increasingly critical against the backdrop of the conflict in Iran and the withdrawal of traditional overseas buyers, yet it also harbors vulnerabilities due to its heavy reliance on pure financial logic.

Since the outbreak of the conflict in Iran, the 10-Year Treasury Yield once jumped by nearly 50 basis points, and several Treasury auctions performed weakly, intensifying market concerns over the sell-off of U.S. debt by non-U.S. governments.

According to Federal Reserve custody data, offshore central banks have cumulatively sold $82 billion in U.S. Treasuries since the conflict began, with their holdings falling to $2.7 trillion, the lowest level since 2012.

However, the truly noteworthy buyers are not central banks, but hedge funds registered in the Cayman Islands. As of the end of 2025, hedge funds held long positions in U.S. Treasuries totaling $2.4 trillion, nearly tripling their holdings from three years ago. Federal Reserve economists believe there is still an underestimation of $1.4 trillion.

Nevertheless, hedge fund holdings are based on purely arbitrage logic. Should interest rate trends or market conditions turn unfavorable, a massive simultaneous unwinding of positions could trigger capital flight, leading to financial stability risks.

Central Banks Sold $82 Billion, But the Impact is Limited

The actions of offshore central banks selling U.S. Treasuries following the outbreak of the conflict in Iran have garnered widespread market attention.

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

However, this scale of selling remains limited within the overall landscape. $82 billion is negligible relative to the total outstanding U.S. Treasury debt, and there are discrepancies between this data and the more authoritative TIC cross-border capital flow data.

More importantly, central banks selling U.S. Treasuries is more likely driven by defensive considerations to reserve foreign exchange ammunition during times of turmoil rather than anti-U.S. sentiment—the Polish central bank's recent sale of gold follows a similar logic.

Hedge Funds Quietly Become the Largest Offshore Holders

Research from the New York Fed indicates that leveraged hedge funds have significantly increased their holdings of U.S. Treasuries since 2018. According to data from the Office of Financial Research, as of the end of 2025, hedge funds held long positions in U.S. Treasuries totaling $2.4 trillion and short positions totaling $1.6 trillion, nearly tripling their holdings from three years prior.

This expansion is mainly driven by two types of trades: "basis trades" that arbitrage the price difference between futures and spot markets, and "swap" trades, which have recently seen a sharp increase in scale.

More strikingly, Federal Reserve economists suggest that official TIC data undercounts cross-border hedge fund holdings by as much as $1.4 trillion. After this correction, "the Cayman Islands is effectively already the largest offshore holder of U.S. Treasury debt, with holdings significantly exceeding 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. intermediate and long-term Treasury bonds, almost equivalent to the total of all other offshore investors combined."

Hedge Funds' Dual Role: Stabilizers or Sources of Risk

Industry figures like Citadel founder Ken Griffin believe that hedge fund participation provides beneficial liquidity support to the market. During the Federal Reserve's quantitative tightening, their buying effectively cushioned debt market pressures;

However, hedge fund holdings are based on pure arbitrage logic. Should interest rate trends or market conditions turn unfavorable, a massive simultaneous unwinding of positions could trigger capital flight, leading to financial stability risks.

It is reported that at the beginning of the conflict in Iran, some crowded hedge fund positions were "cleansed," but the situation has not yet deteriorated further. Long-term asset holders such as insurance companies have also not shown significant signs of exiting, and the market remains relatively stable.

Regardless of how the market responds currently, U.S. Treasury Secretary Scott Bessent faces unavoidable refinancing pressures. Next year, 33% of the total U.S. Treasury debt will mature, requiring the rollover issuance of approximately $10 trillion in new debt.