The Bank of Canada examined the role of hedge funds in the Government of Canada bond market. Among the findings in its August 1, 2023 report:

• Hedge funds represent 28% of transaction volume in the Government of Canada bond market, the second highest share following wealth managers (31%).
• When market participants sell government bonds, hedge funds on balance, most times, buy bonds, making markets more liquid and efficient. In effect, they take opportunistic positions in Government of Canada bonds that may be temporarily mispriced.
• But, in periods of market turmoil (eg. March 2020), hedge funds were net sellers of Government of Canada bonds just like other market participants, adding to strains on market liquidity.

A similar scenario emerged in the U.S. In her March 30, 2023 remarks at the National Association for Business Economics 39th Annual Economic Policy Conference, Secretary of the Treasury Janet Yellen noted that hedge funds were among the top three sellers of Treasury Securities in March 2020 (along with foreign institutions and open-ended mutual funds) and materially contributed to Treasury market disfunction.

Under a new rule enacted by the SEC on May 3, 2023, large hedge fund advisers will be required to file a current report within 72 hours from the occurrence of one or more trigger events that could indicate significant stress at a fund or signal risk in the broader financial system. Such events include extraordinary investment losses, significant margin and default events, and events associated with withdrawals and redemptions.

Additional Sources:

Financial Stability Oversight Council Annual Report 2022 (treasury.gov)

Hedge Fund Trading and Funding During the March 2020 US Treasury Market Dislocation – The FinReg Blog (duke.edu)