NEW YORK ( TheStreet) -- Hedge fund trading of U.S. government bonds has practically doubled in the past year, according to a report published Tuesday by financial services consulting firm Greenwich Associates.

The report, based on interviews with nearly 1100 institutional investors active in fixed income, including more than 300 hedge funds, found the hedge funds generated 24% of U.S. trading volume in U.S. government bonds over the twelve month period ending at the close of the second quarter in 2012. By contrast, hedge funds accounted for 13% of trading volume in U.S. government debt over the same period a year earlier.

The surge in government debt trading by hedge funds was fueled partly by an overall increase in hedge fund fixed income trading. Hedge funds generated 24% of U.S. fixed-income trading volume in the latest 12 month period, compared to 18% during the previous one.

But hedge funds also cut back dramatically on trading in investment grade corporate debt. Volume in U.S. investment grade fixed income trading by hedge funds dropped by 60%, according to the survey.

The rise in hedge fund fixed income trading has been accompanied by a decline in such trading by banks, which are facing increasing regulatory pressure to reduce market bets. Indeed, as Greenwich points out, many of the same traders now operating at hedge funds left banks due to regulatory constraints. Banks' share of fixed income trading volume dropped to 17% versus a 24% share of the market during the previous 12 month period.

Hedge funds have another reason to increase their presence in fixed income markets, however, which is that they haven't performed very well betting on equities. A separate report released Tuesday from Goldman Sachs, focusing solely on equity bets by hedge funds found that just 11% of the funds are outperforming the S&P 500 year to date.

-- Written by Dan Freed in New York.

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