Hedge funds now represent the majority of activity in electronically traded UK government bonds, marking a significant structural shift in one of Europe’s most important fixed income markets, according to a report by Bloomberg citing data from electronic trading platform operator Tradeweb.
Tradeweb’s figures show that hedge fund participation in gilt trading has risen to around 63% of volumes, up by roughly a third between 2021 and 2025. Over the same period, the share of trading conducted by traditional long-term investors such as pension funds and insurers has declined sharply, falling to approximately 26% from 45%.
The data underscores a broader transformation in market composition, with faster-turnover, leverage-driven strategies playing a larger role in daily price formation. Market participants note that while this reflects increased electronification and liquidity provision, it may also be contributing to more abrupt and pronounced price moves during periods of stress.
The growing influence of hedge funds has drawn scrutiny from policymakers amid episodes of heightened volatility this year, including reactions to geopolitical tensions in the Middle East and domestic political developments in the UK. Some investors and officials have attributed the speed and depth of recent moves in gilts to the behaviour of short-term, leveraged market participants.
Tradeweb estimates that its platform accounts for roughly half of total UK gilt trading activity reported under MiFID reporting standards, including both electronic execution and trades negotiated via voice or dealer channels. Average daily volumes on the platform reached approximately £13.4bn last year, more than doubling since 2021, while average trade sizes fell by more than 25% to around £3.3m – a shift the firm attributes to growing automation and fragmentation of order flow.
The changing structure of the market has also prompted regulatory attention. Andrew Bailey, Governor of the Bank of England and chair of the Financial Stability Board, has previously warned that concentrated positions among leveraged investors could pose risks if unwinding occurs simultaneously under stress conditions.
Particular focus has been placed on the so-called basis trade, a leveraged strategy that exploits pricing differences between cash government bonds and related derivatives. Policymakers have expressed concern that crowded positioning in such trades could amplify volatility in the event of rapid deleveraging.
While market evolution has improved liquidity in normal conditions, regulators continue to assess whether the growing dominance of hedge funds in electronic trading channels could increase systemic fragility during periods of market stress.
