FSB Warns of Rising Risks in $16 Trillion Government Bond Repo Market

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Financial Stability Board (FSB) Chair Andrew Bailey arrives for the "1+10" Dialogue with Chinese Premier Li Qiang (not pictured) and heads of major economic organisations, at the Diaoyutai State Guesthouse in Beijing, China December 9, 2025.

Financial Stability Board (FSB) Chair Andrew Bailey arrives for the «1+10» Dialogue with Chinese Premier Li Qiang (not pictured) and heads of major economic organisations, at the Diaoyutai State Guesthouse in Beijing. Photo: REUTERS/Florence Lo/File Photo© Thomson Reuters

Global financial vulnerabilities are building in the $16 trillion market for government bond-backed repurchase agreements, the Financial Stability Board warned on Wednesday, citing rising leverage among hedge funds and increased reliance on short-term funding.

The FSB said outstanding government bond-backed repos rose about 20% since 2022, reaching roughly $16 trillion by the end of 2024. The United States accounts for nearly 60% of activity, followed by Britain, the euro zone and Japan.

In a report, the watchdog highlighted risks including high leverage, demand and supply imbalances, and concentration among borrowers and intermediaries, which could amplify market stress. Recent episodes such as the 2019 U.S. repo rate spike and Britain’s 2022 LDI crisis showed how quickly disruptions can spread.

FSB chair Andrew Bailey has previously warned that heavy hedge fund activity in UK gilt repo markets could trigger fire sales if funding dries up. Regulators are now weighing tighter oversight, while the U.S. Securities and Exchange Commission plans to introduce central clearing for most Treasury repo trades by 2027.

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