Hedge Funds Clash With Asset Managers on How to Trade Treasuries

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(Bloomberg) — Hedge funds are doubling down on bearish Treasuries bets just as traditional money managers grow more positive in anticipation that the worst of the global debt selloff is over.

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Leveraged funds boosted short positions on US sovereign debt to the most since October 2020 last week, based on Commodity Futures Trading Commission data adjusted to give a higher weighting for longer maturities. Asset managers — including pension funds, insurers and mutual funds — ramped up long positions to the highest since April 2020, based on similarly adjusted data.

“Many asset managers buy when they see value in the medium to long term, whereas hedge funds try to profit from any moves in the market,” said Akira Takei, global fixed-income money manager in Tokyo at Asset Management One Co., which oversees the equivalent of $524 billion. “Treasuries are undervalued, and the worst of the bond market is behind us.”

The difference in stance between the two investor classes comes as Treasuries head for their first monthly gain since November, according to an index compiled by Bloomberg. US 10-year yields have dropped to 2.74%, from as high as 3.20% in early May, on concern central bank interest-rate increases will puncture global growth and potentially lead to a recession.

JPMorgan Asset Management and Morgan Stanley are among those predicting the worst of the Treasury rout looks to be over. Bond markets have already priced in the rate hikes needed to combat inflation, they have both said in recent weeks.

Several other factors are also helping to turn investors more positive on global bonds.

“With some softer US data, equity markets weakening and softer comments coming from the Fed, markets have come to the view that the Fed may not have to hike rates as aggressively as previously thought,” said Andrew Ticehurst, strategist at Nomura Holdings Inc. in Sydney. “We’ve come back to mid-range in many asset classes including Treasuries, reflecting the fact that views are mixed.”

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