Hedge funds are stepping up their involvement in the $12.8 trillion Treasuries market, picking up the slack from Wall Street dealers and amassing a record amount of U.S. government debt. News this week that Element Capital Management LLC, a New York hedge fund, was pouring billions into Treasury auctions may have stunned traders because of the sums involved. Yet hedge funds’ growing presence in Treasuries should come as no surprise. Asset managers domiciled...