More Investors Hold Bullish US Bond Bets Before FOMC, Survey Finds

Tuesday, 18 Jun 2013 11:30 AM

 

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More investors raised their positions in longer-dated U.S. Treasurys holdings in the latest week in advance of the Federal Reserve's two-day policy meeting, according to a survey released on Tuesday.

A total of 19 percent of its Treasurys clients said on Monday they were "long" in their duration on U.S. government debt, or owning more longer-dated Treasurys than their benchmarks, up from 11 percent a week earlier, the latest JPMorgan Securities survey showed.

This was the highest share of its clients who said they were long in their duration in about five months.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

By holding more longer-dated Treasurys, investors add duration or interest rate risk to their portfolios in anticipation of a market rally when longer-dated bonds generate higher returns than shorter-dated debt.

Treasurys prices have slid and their yields have jumped in recent weeks due to worries the U.S. central bank might reduce its $85 billion monthly purchases of Treasurys and mortgage-backed securities later this year, as the U.S. economy has shown tentative signs of sustainable growth.

The rebound in Treasurys longs likely stemmed from bargain-minded investors who bought them after their longer-dated yields rose to 14-month highs last week.

There has also been a persistent view the Fed will stick with its current pace of bond purchases as long as unemployment remains high and inflation runs below its 2 percent target.

Benchmark 10-year Treasury notes traded 7/32 lower in price early Tuesday with a yield of 2.203 percent, up 2.5 basis points from late on Monday. The 10-year yield reached a 14-month high of 2.293 percent a week ago.

The Federal Open Market Committee, the central bank's policy-setting body, will convene later Tuesday. It is expected to release a policy statement and economic forecasts at 2 p.m. on Wednesday, followed by a conference with Fed Chairman Ben Bernanke.

The bond market has stabilized in recent days, although intraday volatility remained high. This suggested there are fewer investors who are "short" in their Treasurys duration, or own fewer longer-dated Treasurys than their benchmarks.

In JPMorgan's latest survey, a total of 15 percent of its Treasurys clients said they were "short," down from 28 percent a week earlier.

The share of "longs" exceeded "shorts" by 4 percentage points in the latest week, compared with a week ago when shorts exceeded longs by 17 points, JPMorgan said.

The share of investors who said they held Treasurys equal to their benchmarks rose to 66 percent, from 61 a week earlier.

Among active clients, who are viewed as making speculative bets in Treasurys, 77 percent said their longer-dated Treasurys holdings matched their benchmarks, up from 61 percent the prior week.

The survey showed 15 percent of active "longs," up from 8 percent the prior week.

Only 8 percent of active clients said they were short in duration versus their benchmarks, down sharply from 31 percent a week earlier.

JPMorgan surveys 40 to 60 of its Treasurys clients weekly, of which 60 percent are fund managers, 25 percent are speculative accounts and 15 percent are central banks and sovereign wealth funds.

It asks 10 to 20 of its active clients each week about their Treasurys holdings, of which 70 percent are speculative accounts and the rest are money managers.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

© 2014 Thomson/Reuters. All rights reserved.

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