Asset Shift: Hedge funds move into cash as they reduce holdings in long term US debt
The Financial Times reports how US government debt sold off sharply on Monday April 7, 2025, as hedge funds cut back on risk in their strategies and investors continued shifting into cash during a third day of acute tumult on Wall Street.
Meanwhile hodl.com report reduction of US debt holdings by the UK, Japan and China earlier.
The benchmark 10-year Treasury yield jumped 0.19 percentage points on Monday to 4.18 per cent, the biggest daily rise since September 2022, according to Bloomberg data. The 30-year yield jumped 0.21 percentage points, the biggest move since March 2020. Yields rise when prices fall.
Monday’s drop in Treasuries — ultra-low-risk assets that typically shine during periods of market turbulence — highlights how US President Donald Trump’s announcement last Wednesday of steep tariffs against trading partners continues to reverberate across Wall Street.
Equities fell sharply on Thursday and Friday, shedding $5tn of market value, but investors had initially sought refuge in Treasuries. Market participants said the declines in the $29tn Treasury market on Monday reflected several factors, including hedge funds cutting down on leverage — or borrowing used to magnify trades — and a broader dash for cash as investors sheltered from swings in the wider market. Gennadiy Goldberg at TD Securities said the move reflected “an ‘everything, everywhere all at once’-type trade”. He added: “Multisector funds are trying to deleverage, which leads to a ‘sell everything’ trade.”
Investors and analysts pointed in
particular to hedge funds that took advantage of small differences in the price
of Treasuries and associated futures contracts, known as the “basis trade”.
These funds, which are large players in the fixed-income market, unwound those
positions as they cut back on risk, prompting selling in Treasuries.
New numbers from the Treasury Department show the three nations collectively slashed their
holdings by $81 billion in December.
China unloaded $9.6 billion in Treasuries, reaching its
lowest holdings since 2009 at $759 billion.
Japan sold off $27.3 billion in bonds, with the nation now
holding $1.0598 trillion in Treasuries, the most of any single country.
And the UK also pared back in a major way, leading the pack
with $44.1 billion in Treasury sales, reaching a total holding of $722.7
billion.
This trio’s retreat from US debt, combined with China’s
aggressive gold accumulation, underscore concerns about a potential strategic
shift away from US dollar assets as America faces a $2 trillion deficit and
mounting borrowing costs.
The moves also come as yields on 10-year Treasuries hover
near 4.5%, testing demand as the Federal Reserve continues its quantitative
tightening, offloading $60 billion in Treasuries each month.
After a six-month pause, China resumed buying gold in
November of last year.
And the buying continued in December, with China’s central
bank adding about ten tons of gold reserves in the month
for a total of 2,280 tons by year-end, according to data from the the World
Gold Council.
Sources: Financial Times and the dailyhodl.com
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