Hedge funds supercharged bearish Treasury bets to historic levels just days before the US banking turmoil took a turn for the worse and spurred a stampede for the world’s safest assets.
Q1 2023 hedge fund letters, conferences and more
Leveraged funds boosted overall shorts on US bond futures to a fresh record in the week of May 2, according to a gauge of aggregate net positions based on the latest data from the Commodity Futures Trading Commission. That’s a seventh straight week of ramped-up bearish bets — the longest streak since 2017.
The positioning preceded a hectic week for Treasuries that saw a rally spurred by jitters around US regional banks and forecasts the Federal Reserve could pause its most aggressive tightening cycle since the 1980s. However, sentiment flipped again Friday as better-than-expected US jobs data dampened expectations of a pivot and propelled yields higher.
“We acknowledge there are some near-term risks — fears about smaller banks and an unresolved debt ceiling — that could further deepen cut pricing,” Goldman Sachs Group Inc. strategists including Praveen Korapaty wrote in a note. However, Fed cut bets are “likely overdone when viewed against a robust macro backdrop.”
Hedge funds’ bearish positions on US government bonds are at odds with Wall Street giants from Morgan Stanley to JPMorgan Chase & Co. who reckon fixed-income securities are a safer investment as the world’s biggest economy lurches toward a recession. Bond market pricing suggests the Fed is likely to cut rates by 75 basis points through December, despite policymaker pushback.
Read the full article here by Ruth Carson, Garfield Reynolds, Advisor Perspectives.
