US$3 Trillion in Hedge Fund Repo Borrowing: The Global Fault Line on the RBA's Radar

Sonal Goyal

05 October 2026 03:59 PM AEDT

US$3 Trillion in Hedge Fund Repo Borrowing: The Global Fault Line on the RBA's Radar

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The Reserve Bank's October Financial Stability Review singled out hedge fund leverage in the United States as one of the growing vulnerabilities in global markets, with repo borrowing now above US$3 trillion.

Most of the Reserve Bank of Australia's October 2026 Financial Stability Review is about Australian households, businesses and banks. But its first chapter, on the global macro-financial environment, looks well beyond Australia's borders, and one figure stands out.

"Hedge fund leverage is near record highs, with total repo borrowing by US hedge funds over US$3 trillion," the Review said. The RBA put that borrowing at around 10 per cent of US GDP.

The Review was released on 1 October at 11.30 am. Its overall verdict was that "Australia's financial system has a good degree of resilience, but global and operational vulnerabilities continue to mount". Hedge fund leverage is one of the clearest examples of the global side of that warning.

What the number describes

Repo borrowing refers to repurchase agreements, a form of short-term borrowing secured against securities. Hedge funds can use it to increase the size of their positions beyond what their own capital alone would allow. That is what leverage means: using borrowed money to magnify exposure, which magnifies potential losses as well as potential gains.

The RBA's two key observations are:

Scale: total repo borrowing by US hedge funds is over US$3 trillion, around 10 per cent of US GDP.
Trend: hedge fund leverage is near record highs.

The Review did not describe this as a crisis, and it did not predict one. What it did was place hedge fund leverage among the "growing vulnerabilities in global financial markets" that it lists as threats to financial stability, alongside "elevated threats from ongoing geopolitical tensions" and "advances in artificial intelligence and critical service provider disruptions".

A wider pattern of risk-taking

Hedge fund leverage did not appear in isolation. The global chapter described a broader environment in which investors appear willing to take on risk.

"Risk premia in global equity and credit markets remain low by historical standards," the Review said. In plain terms, investors are not demanding much extra return for taking on risk compared with the past.

On technology stocks, the Review said AI-related equity prices "reflect very strong expectations regarding future adoption and productivity rates, revenue growth and profitability". High expectations leave room for disappointment if those outcomes are not achieved, although the Review stopped short of forecasting any correction.

Private credit is another area under watch. The RBA noted that some private credit funds have used redemption limits, known as "gates". According to the Review, these "have so far helped to contain liquidity pressures and the need for forced asset sales". The words "so far" are a reminder that the RBA is monitoring how these arrangements hold up.

The chapter also pointed to rising government debt servicing costs, and noted that energy prices rose sharply again in September in response to Middle East developments.

Taken together, the picture is one of low compensation for risk, high expectations in some equity markets, elevated leverage among hedge funds and pockets of liquidity strain in private credit. None of these alone defines the outlook, but the RBA's view is that the global vulnerabilities are building.

Why an Australian central bank is watching

Not every global vulnerability reaches Australia directly. On China, for example, the Review stated that "Australia has little direct exposure to China's financial system". It did not make a similar statement about US hedge funds, but its inclusion of their leverage in the global chapter shows the RBA regards developments in major overseas markets as relevant to Australia's financial stability.

The good news from the Review is that the domestic system is starting from a position of strength. The RBA said "Australian banks are well positioned to continue lending, even in a downturn". It also said "system-wide risks to stability posed by non-bank lenders remain contained by their relatively small size".

Households also appear resilient. "Most Australian households with mortgages remain well placed to manage more difficult conditions," the Review said. Among businesses, "Most businesses should be able to manage elevated cost pressures, although conditions are more challenging in some sectors".

Governor Michele Bullock previewed the Review at her 29 September media conference: "Our Financial Stability Review comes out on Thursday, and it will talk a little bit about the vulnerabilities". The global chapter is one place where those vulnerabilities are set out in detail.

Where this fits with monetary policy

The Financial Stability Review is separate from the RBA's interest rate decisions, but it was released in the same week as one. On 29 September, the Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent, citing inflation that remains above target. The August monthly CPI indicator showed headline inflation of 4.0 per cent, with underlying inflation around 3.5 per cent.

The global risks the FSR identifies sit in the background of that setting. The Board's statement noted that "The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts", a reminder that global developments can affect both inflation and financial conditions.

What to watch next:

18 and 19 October: Assistant Governor (Financial Markets) Christopher Kent has an interview on News 24 with Ross Greenwood and a fireside chat at the Commonwealth Bank Global Markets Conference in Sydney.
21 October: Deputy Governor Andrew Hauser speaks at Citi's Australia & New Zealand Investment Conference in Sydney.
26 October: Assistant Governor (Financial System) Brad Jones joins a panel at the AFR Super and Wealth Summit in Melbourne.
3 November: the next cash rate decision and the November Statement on Monetary Policy.

The RBA has not said what any of these speakers will discuss, so there is no guarantee that hedge fund leverage will feature.

The bottom line

US hedge funds have borrowed more than US$3 trillion through repo markets, around 10 per cent of US GDP, and their leverage is near record highs, according to the RBA's October Financial Stability Review. The Review placed this among the growing vulnerabilities in global financial markets, alongside low risk premia, very strong expectations built into AI-related share prices and liquidity pressures in private credit. Its assessment is that Australia's financial system has a good degree of resilience, with banks well positioned to keep lending even in a downturn, but that global and operational vulnerabilities continue to mount.

FAQs

Q: How much US hedge fund repo borrowing is discussed?

A: More than US$3 trillion.

Q: Why is repo borrowing relevant to stability?

A: The article places it alongside high leverage and growing global market vulnerabilities.

Q: Does the review also assess Australian resilience?

A: Yes. It describes resilience in Australia's financial system alongside external vulnerabilities.

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