Bill Gross and Larry Fink manage a $3 trillion pile of bonds -- an amount almost as big as Germany’s economy. Their firms, Pacific Investment Management Co. and BlackRock Inc., doubled holdings since 2008, outpacing the market’s growth of 50 percent.

Some of the largest hedge-fund firms, including Bridgewater Associates LP and BlueCrest Capital Management LLP, have also more than doubled their investments in debt, data compiled by Bloomberg show. At the same time, Wall Street banks are shrinking their stakes in bonds, Federal Reserve data show.

The lopsided bond market has caught the attention of the U.S. Securities and Exchange Commission. Not only is the SEC examining whether the biggest players get preferential prices and access because of their influence, it’s also worried about what happens when the five-year bond rally ends as U.S. policy makers prepare to raise interest rates.

“It’s going to be interesting to see who’ll take the other side of the trade if there’s a meaningful sell-off, which presents a huge risk,” said Arthur Tetyevsky, a credit-trading strategist at Imperial Capital LLC in New York. “We’re much closer to the end of the rally, that’s for sure.”

The biggest funds’ dominance may make it harder for everyone to sell when the Fed boosts borrowing costs from record lows and sends bond prices tumbling. In essence, their selling may crowd narrowed exits, making it more painful as all investors race to get out of a falling market.

Migrating Hazard

While regulators have looked at the threat to the financial system posed by too-big-to-fail banks, hazard has migrated to money managers. Banks, facing stiffer restrictions on borrowing and the amount of cash they need to keep on hand in the aftermath of the credit crisis, have cut the amount of their own money they use to help clients trade. That reduced role leaves the bond market more vulnerable to ripple effects from the actions of the behemoth managers.

More than five years of near-zero interest rates from the Fed has propelled corporate bonds to record performance and the biggest debt managers have ballooned in size. Pimco, Vanguard Group Inc. and Fidelity Investments manage 39 percent of all mutual fund-owned taxable bonds today, up from 18 percent in 1997, according to Morningstar Inc. data. The smallest 205 fund providers manage 0.1 percent of the market.

Bond Oligarchy

“When it comes to fixed-income management, there is an oligarchy,” said Robert Smith, chief investment officer at Austin, Texas-based Sage Advisory Services Ltd., which oversees about $10.5 billion. “That can be good and that can be bad. It’s bad when you have a market that’s feeling like it’s weak and not doing well and selling off.”