Hedge Fund Repo Market Borrowing Rose to $3 Trillion

Hedge funds have become the largest repo market participants, relying on leveraged trades to boost their returns.

Updated on Sept. 28, 2026 in Economic Indicators

Isometric editorial illustration of a complex system of pipes and geometric containers circulating fluid, representing financial market infrastructure. — Hedge funds have increased their borrowing in the $13.5 trillion repo market to $3 trillion, as of July 2025, to fund Treasury arbitrage. AI Illustration. Upload story photo >

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A new report from the New York Fed highlights the massive scale of the $13.5 trillion repurchase agreement market. Hedge funds now lead borrowing activity, reaching $3.0 trillion by July 2025 as they fund complex arbitrage strategies.

Why it matters

The repo market serves as a critical plumbing system for short-term liquidity, and hedge funds use this borrowed cash to multiply returns through the Treasury basis trade. By purchasing Treasurys and selling futures, these firms have scaled their borrowing significantly since 2017.

Hedge funds borrowed $3.0 trillion in the repo market as of July 2025, a sharp increase from $2.5 trillion just one year prior. Meanwhile, money market funds, which provide critical liquidity, held $8.4 trillion in total balances during the second quarter of 2026.

The players

New York Fed

The central bank branch that monitors financial market stability and oversees the clearing of large-scale repurchase agreements.

Money market funds

Investment vehicles that offer households and institutional investors short-term, liquid interest-bearing accounts.

The details

In the repo market, dealers act as vital intermediaries between lenders like money market funds and borrowers like hedge funds. Hedge funds leverage their capital by executing the Treasury cash-futures basis trade, which involves buying Treasury securities while simultaneously selling Treasury futures contracts. This allows them to profit from small price discrepancies, though it requires constant access to short-term cash to maintain their positions.

July 2017: Hedge funds borrowed $664 billion in the repo market.
July 2025: Hedge fund borrowing in the repo market reached $3.0 trillion.
October 2025: US banks borrowed $422 billion in the repo market.
January 2026: Money market funds lent $3.0 trillion to the repo market.
Q2 2026: Total money market fund balances reached $8.4 trillion.

Money Landscape

The repo market has grown into a $13.5 trillion pillar of finance, reflecting the increasing integration of hedge fund arbitrage into the core of the financial system. This volume underscores a shift where non-bank entities now drive market demand for short-term liquidity.

While the repo market operates behind the scenes, its stability influences the broader interest rates and liquidity available to household accounts. Reviewing your cash-equivalent holdings in money market funds can help you understand how your capital is being deployed by these intermediaries.

The takeaway

The repo market has become a primary venue for hedge funds to scale complex basis trades, ballooning to $3 trillion in borrowing. Investors should monitor liquidity levels in money market funds to ensure they align with their own household cash management goals.