[jpl]

Fun fact that most people aren't even aware of: the biggest foreign holder of U.S. treasuries is no longer China, or Japan, or the U.K: it's a bunch of shadowy hedge funds registered in the Cayman Islands, and supposedly even our own government isn't completely sure exactly who is controlling these hedge funds (though I find that difficult to believe).

Some conspiracy theorists believe that it's actually the Federal Reserve itself behind these funds.

[Mariner]

“Fun fact that most people aren’t even aware of: the biggest foreign holder of U.S. treasuries is no longer China, or Japan, or the U.K: it’s a bunch of shadowy hedge funds registered in the Cayman Islands”

Do you have a citation for that assertion?

[Mariner]

Nevermind.

Got it...

““The puzzling disconnect between the TIC and Form PF data on Cayman Islands’ holdings of US Treasuries is under active investigation, the results of which should improve data quality in the future. In the meantime, data users should be aware that this major gap exists,” Fed researchers wrote.”

[Mariner]

They do it with 20-40x leverage.

It’s a major risk to capital markets.

Why it Matters (Risk)

Systemic Risk: Due to the high leverage, a rapid, unexpected shift in bond prices can force hedge funds to liquidate their positions (a “basis trade unwind”), causing significant volatility in the Treasury market.
Market Impact: Past instances of massive unwinding, such as in March 2020, have required intervention from the Federal Reserve to stabilize the market.