Sovereign Debt Markets and Hedge Funds: Financial Entanglements as Sources of Uncertainty

This session opens the Center for Political Economy's fall series on the political economy of liquidity by considering how the entanglements of financial actors shape and produce uncertainty within sovereign debt markets. Underpinning nearly all other forms of credit, from mortgages to corporate debt to the financing of AI, the stability of sovereign debt markets is foundational to the wider financial system, as is demonstrated by the current moment of newly volatile yields and growing fiscal concerns. 

Hedge funds, specifically, have become major holders of U.S. Treasury debt, often using the asset as one leg of leveraged trades, deepening the market's reliance on borrowed money. That involvement has helped absorb government borrowing but it has also tied the market's stability to highly leveraged players, as the episode in the spring of 2020 made clear. 

The session explores what this entanglement of funding, monetary policy, and collateral means for the stability of sovereign debt markets, and for how uncertainty is managed and generated at the center of the financial system.

Speakers:

• Loriana Pelizzon, Professor of Law and Finance at Goethe University Frankfurt and Deputy Scientific Director at SAFE
• Elham Saeidinezhad, Doctoral Lecturer in Finance at the Colin Powell School of Business at City College of New York