Hedge funds have dumped over $100 billion in Treasurys this year, accelerating the bond market's vicious sell-off

• Hedge funds have sold over $100 billion in Treasurys since January, becoming big contributors to the bond-market slide, Bloomberg reported.
• Investors in the Cayman Islands have been the biggest net sellers of US sovereign debt.
• The sell-off by hedge funds began before the latest round of US government fiscal stimulus.

Hedge funds have played an instrumental role in this year's rout in the US bond market by selling off more than $100 billion in Treasurys, according to a Bloomberg report.

Investors in the Cayman Islands, a major financial center and a known domicile for leveraged accounts, have been the biggest net sellers of US government debt, offloading $62 billion of sovereign bonds in February and dumping $49 billion in January, with Bloomberg citing data from the Treasury Department.

The sell-off began after the early January Senate run-off elections that were won by two Democrats. The victories gave that party a 51-vote majority in the upper house of Congress, including Vice President Kamala Harris, paving the way for a large new round of government fiscal spending. In March, President Joe Biden signed into law a $1.9 trillion stimulus package that passed 51-50 in the Senate.

The rollout of COVID-19 vaccines also contributed to investors deciding to exit bonds. As bonds sold off, rising yields prompted a return of convexity-type hedging flows, Bloomberg reported.

The bond market sell-off this year drove the widely watched 10-year Treasury yield above 1.7% for the first time since early 2020. The yield has since pulled back to around 1.58%.