The U.S. repurchase agreement (repo) market experienced substantial growth in recent years, with total daily outstanding positions of lenders and borrowers averaging $12.5 trillion in the second half of 2025. While broker-dealers and banks account for most gross activity, hedge funds have emerged as the leading net borrowers, obtaining over $1.8 trillion on net by late 2025. This surge in borrowing is primarily driven by hedge funds' pursuit of leveraged strategies to boost returns.
Hedge funds utilize repo markets to fund the purchase of securities, often pledging those securities as collateral. A prime example is the "Treasury cash-futures basis trade," where they buy Treasury securities and sell Treasury futures, profiting from price differences. Repo financing amplifies returns on these trades. Their borrowing in repo markets dramatically increased, tripling from $400 billion in 2013 to $1.5 trillion in 2023, and then doubling again to reach $3 trillion by late 2025.
On the lending side, money market funds (MMFs) are the main cash providers, with their lending almost tripling to $3 trillion by January 2026. Government-sponsored enterprises (GSEs) also significantly lend, with 97% of their gross repo outstanding being cash lending. While hedge funds are net borrowers, they also participate as lenders, providing around $1.3 trillion in late 2025, to manage cash and liquidity and for collateral transformation. Banks and broker-dealers act as intermediaries, accounting for over half of total lending and borrowing activity.
