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― Mark Twain
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The Fed Controls All Until It Doesn't
Federal Reserve researchers estimate that by late 2024, Cayman Islands hedge funds held $1.85 trillion in U.S. Treasuries, $1.4 trillion more than the $423 billion reported by the U.S. Treasury. This reflects a $1 trillion rise since 2022, positioning the Cayman Islands as the largest foreign holder of U.S. government securities, ahead of China, Japan, and the UK. The gap likely arises from official data overlooking basis trades, where hedge funds short Treasury futures and purchase Treasury securities to capitalize on price disparities, funding these trades via borrowing in the repo market using the securities as collateral. Tracking ownership is complicated, as custodians may record these securities as sold, even though hedge funds retain ownership.
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