I don’t really know what specifically you’re referring to. I’m not aware of anybody trying to hedge trillions in treasuries in one trade. I’m not aware of anybody even holding trillions in treasuries except maybe a few foreign countries.
Hedging is done at the portfolio level using derivatives. This allows you to move your unwanted exposure to interest rate risk (or just about any kind of risk) to someone else in exchange for a premium. Whoever is taking that risk off your hands probably has a more diverse portfolio and wants the premium (ie their risk profile is different). In this manner, large fixed-rate creditors shouldn’t be largely exposed to rising interest rates, because they’ve been hedging that risk all along.
