Hedge Funds Could Run Into Trouble As They Position For Higher Equities And Bonds

Hedge funds are positioned for higher bond yields and high equity indices according to research from Societe Generale’s Global Asset Allocation research team.

Hedge funds are net short almost every single US Treasury maturity compared to history. Using Z-Scores, hedge fund positions in the five and ten-year segments s are net short by around three times the standard deviation of their long-term averages since July 1998. This suggests some strong convictions that Treasury prices will fall further. SocGen points out that if this ‘belly’ end of the curve collapses, it is likely to lead to underperformance all across the curve.

Net short positions on ten-year US Treasuries are particularly negative, suggesting strong...