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COLUMN-Hedge funds throw in the towel on bullish U.S. bond bets: McGeever
2017年11月6日 / 下午2点03分 / 14 天前

COLUMN-Hedge funds throw in the towel on bullish U.S. bond bets: McGeever

(The opinions expressed here are those of the author, a columnist for Reuters.)

By Jamie McGeever

LONDON, Nov 6 (Reuters) - Hedge funds look to be abandoning their bullish bets on 10-year U.S. Treasuries, in the third biggest shift on record away from trades aimed at profiting from falling yields.

The dramatic shift in speculators’ positioning on the Chicago futures market coincided with yields shooting up to the highest since March. The question now is whether they go one step further and turn outright bearish on the U.S. bond market.

It’s a tricky one - any comfort derived from seeing the 10-year yield reach 2.45 percent will have been fleeting, as the yield has since slid back towards 2.30 percent and the yield curve has compressed to its flattest in a decade.

The latest data from the Chicago Futures Trading Commission show speculators slashed their net long 10-year U.S. Treasuries position to 2,724 contracts in the week to October 31, the smallest bullish bet on 10-year bonds since April.

The change from the preceding week was even more striking. Net longs were slashed by over 150,000 contracts, the biggest weekly shift against 10-year Treasuries this year and the third largest since CFTC began compiling positioning data in 1997.

What triggered a reversal on this scale? The yield breaking up through the May and July peaks of around 2.40 percent would have been a factor, as would the first estimate of third-quarter U.S economic growth at a three-year high of 3.0 percent.

With the 2017 high just above 2.60 percent from March coming into view, traders had a target to aim for.

The week to Oct. 31 also saw a jump in Treasury market volatility, a welcome development for hedge funds and traders craving the chance to take advantage of market swings and price anomalies that have been virtually nonexistent this year.

Three-month implied Treasury market volatility jumped to 60 percent and one-month implied vol 57 percent , both the highest since May.

But yields and volatility are heading south once again and the yield curve is flattening. This suggests the bond market isn’t particularly optimistic on the longer term outlook for the U.S. economy.

The 10-year yield is now 2.32 percent - lower than it was before the market selloff in the week to Oct. 31 - and on Friday last week the one- and three-month measures of implied Treasury volatility both slumped to new record lows of 45 percent and 50 percent, respectively.

It’s been a tough year for macro hedge funds trading bonds and currencies. Barclays’ Global Macro Index is up an estimated 3.42 percent year to date, on course to beat the previous two years but nothing to shout about when world stocks are up nearly 20 percent.

The irony is that October offered a glimpse of what a rise in yields and volatility could do for macro funds’ performance. The Barclays Global Macro Index rose an estimated 1.30 percent in October, easily the best month so far this year.

But the spikes in yields and volatility have evaporated as quickly as they appeared. It could be a frustrating end to the year for hedge funds.

Reporting by Jamie McGeever; Editing by Andrew Heavens

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