Hedge fund invasion of US Treasuries puts traders at risk

New York

HEDGE funds are crowding into US Treasuries, and that has bond traders bracing for more turbulence.

While the Federal Reserve doesn't break out hedge-fund ownership, a group seen as a proxy increased its holdings to a record US$1.27 trillion in the past year, according to a quarterly report released by the central bank this month. That came as foreign central banks and finance ministries, the biggest buy-and-hold owners in recent years, culled their investments for the first time on an annual basis since 2000.

The surge of hedge funds into US government debt is a worrying sign to Societe Generale SA and Commerzbank AG.

They say the firms, which often use borrowed money and jump in and out...

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