This represents just a fraction of the $16tn (£11.7tn) global repo market for government debt.
Repo markets underpin the ability of banks and other financial institutions to borrow cash using gilts or US treasuries as collateral.
The FSB warned that the market could implode if investors lose faith in a government’s ability to pay its bills.
“Demand and supply imbalances in repo markets can arise quickly in stress periods,” the global financial watchdog warned.
“When volatility in financial markets spikes, cash borrowers require additional liquidity for a variety of purposes, including meeting margin calls.
“At the same time, cash lenders may be unable or unwilling to provide funding in periods of stress.”
The FSB added: “Asset managers such as hedge funds who rely on repo markets to finance their sovereign bond positions may have to rapidly liquidate their asset holdings, leading to fire-sale dynamics in the pricing of sovereign debt.”
While borrowing against government debt is one of the most common forms of secured lending, hedge funds have been able to bank huge profits by cashing in on tiny differences between current and future bond prices.
They do this by using the risk-free status of gilts to borrow huge amounts against them.