Hedge funds' borrowing in the repo market has surged 154% since 2022.

The Office of Financial Research in the United States stated that since the end of 2022, the amount of borrowing by hedge funds in the repurchase market has surged by 154% to reach $3.1 trillion, reflecting an increase in leveraged trading strategies. The annual report released by the OFR on Thursday showed that as of last June, qualified hedge funds - those with assets exceeding $500 million - had a leverage ratio of 2.6 times, meaning they borrowed $2.60 for every $1 of assets held. Some funds employing specific strategies, especially macro, multi-strategy, and relative value funds, had leverage ratios of up to 6 times. Hedge funds also increased their trading financing through loans from securities firms' prime brokers, with such financing growing by 83% to reach $3 trillion. If hedge funds are forced to close out losing trades or sell off other assets to meet margin calls, such borrowing could exacerbate financial market risks. Hedge funds have increased their exposure to U.S. Treasury bonds and related derivatives by $1 trillion, to reach $4.1 trillion. "If hedge funds suffer significant losses or market volatility worsens, they may face additional margin calls or be constrained by risk limits, forcing them to quickly unwind large leveraged positions," the OFR stated in its report, "such unwinding could exacerbate market volatility and the risk of forced low-price asset sales."