Hedge funds have become the dominant cash borrowers in private repo markets, with outstanding borrowing reaching $3 trillion in late 2025, according to a report published September 28, 2026, by researchers at the Federal Reserve Bank of New York. The analysis examines who participates in the $13.5 trillion U.S. repo market, where financial institutions lend and borrow money on a collateralized basis, typically for very short periods. The report is the first in a three-part series exploring repo market structure and its role in monetary policy.
Hedge fund borrowing in repo markets tripled between 2013 and 2023, climbing from $400 billion to $1.5 trillion, then doubled again over the next two years to hit the $3 trillion mark by late 2025. On the lending side, money market funds supplied nearly $3 trillion in January 2026, almost triple the $1 trillion they lent in January 2021 and up 90 percent from under $600 billion in January 2013. Hedge funds also lend in these markets, providing around $1.3 trillion in late 2025, up from $350 billion in early 2013. The next three largest borrowers—U.S. branches and agencies of foreign banks, U.S. depository institutions, and real estate investment trusts—jointly held outstanding borrowing between $800 billion and $1.3 trillion since 2013. The daily volume of outstanding repo agreements in the U.S. now stands at roughly $13.5 trillion, equivalent to 40 percent of U.S. GDP, with around 70 percent collateralized by U.S. Treasury securities and most carrying overnight maturities.
The report explains that hedge funds lean on repo markets to gain leverage and amplify returns, particularly through strategies like the "Treasury cash-futures basis trade," where a fund purchases a Treasury security and sells a futures contract to profit from the price differential, then finances the Treasury purchase with borrowed cash in a repo backed by those same securities. Money market funds, meanwhile, use repos as a short-term investment that satisfies their regulatory requirements on maturity and asset composition while offering flexibility to handle investor redemptions. The authors note that repos involving Treasury and federal agency securities are exempt from the automatic stay under U.S. bankruptcy law, meaning if the cash borrower defaults, the cash lender can quickly terminate contracts, sell the securities, and sidestep the uncertainty of bankruptcy proceedings—a feature that has supported the liquidity and expansion of these markets.
The researchers plan to examine the microstructure of different repo market segments in the second post and the market's significance for monetary policy implementation in the third. Dealers serve as crucial intermediaries, purchasing securities from leveraged investors such as hedge funds and entering into repos with other dealers or cash lenders like money market funds, effectively funneling money from lenders to borrowers. Repo markets trace back to the early 20th century, but their size and contracting conventions shifted sharply in the 1980s after several dealer failures amid rising interest rate levels and volatility. The market now hosts a wide variety of participants and functions both as a funding source and a venue for obtaining specific securities in high demand.