Fed: The banking system remained sound and resilient, but hedge fund leverage rose to historical highs, concentrated among the largest funds.

Fed: The banking system remained sound and resilient, but hedge fund leverage rose to historical highs, concentrated among the largest funds.

Hedge fund managers are expressing concerns about the U.S. corporate bond markets and the broader economic outlook. Boaz Weinstein, founder of Saba Capital Management, expects the markets to remain "bumpy" due to credit spreads widening sharply since the implementation of U.S. President Donald Trump's tariff policies [1]. Meanwhile, Bridgewater Associates, a prominent hedge fund, warns that Trump's policies could induce a recession, creating exceptional risks to U.S. assets [2].

Weinstein, speaking at the London Volatility Investing Conference, noted that credit spreads have widened significantly. The ICE BofA index (.MERC0A0) shows that U.S. investment-grade spreads closed at 108 basis points on Wednesday, hitting their widest since November 2023 at nearly 120 bps in early April. He believes that credit is still mispriced, and even if Trump backs off on tariffs, markets are likely to remain volatile.

Bridgewater Associates, founded by Ray Dalio, is also concerned about the economic impact of Trump's policies. The co-CIOs, Bob Prince, Greg Jensen, and Karen Karniol-Tambour, suggest that the world is undergoing a "rapid shift to modern mercantilism," which could lead to a policy-induced slowdown and a rising probability of a recession. This shift, they argue, could unwind conventional investing wisdom and create vulnerabilities in portfolios.

Both Weinstein and Bridgewater highlight the importance of assessing recession risks through market analysis and prediction markets such as Polymarket. Weinstein believes that there is a lot of opportunity between safe credit and unsafe credit, echoing the dynamic seen in 2008. Bridgewater, with $92.1 billion in client assets, underscores the risks posed by a potential slowdown and the shift away from U.S. assets.

As the banking system remains sound and resilient, the focus on hedge fund leverage is rising. According to recent data, leverage among the largest hedge funds has reached historical highs, further adding to market uncertainty.

References:
[1] https://www.tradingview.com/news/reuters.com,2025:newsml_L8N3R2224:0-hedge-fund-manager-boaz-weinstein-expects-bumpy-markets/
[2] https://www.cnbc.com/2025/04/24/bridgewater-hedge-fund-warns-trump-policies-could-induce-a-recession.html