June 25, 2019 / 4:12 PM / 3 months ago

Investors turn neutral on U.S. bonds as Fed hints at rate cuts - survey

June 25 (Reuters) - Bond investors turned neutral on longer-dated U.S. Treasuries after the Federal Reserve signaled its readiness to lower interest rates to counter slowing global growth and weak domestic inflation, a J.P. Morgan survey on Tuesday showed.

Twenty-one percent of investors said they were long or holding more longer-dated Treasuries than their benchmarks on Monday. This was equal to the share of investors who said they were short or holding fewer longer-dated bonds than their benchmarks.

A week ago, the share of long investors exceeded the share of short investors by 4 percentage points.

Meanwhile, the share of investors who said they were neutral or holding longer-dated U.S. government debt equal to their portfolio benchmarks rose to 58%, up from 54% the week before, the latest J.P. Morgan survey showed.

Last Wednesday, Fed policy-makers reduced their interest rate outlook for the rest of 2019 by about half a percentage point on worries about the impact of conflicts between the United States and its trading partners.

Signs of softening price growth and inflation expectations have also concerned Fed officials.

Interest rates futures suggested traders see a 100% chance the Fed would lower rates by a quarter point next month, followed by at least two more quarter-point rate cuts by the end of 2019, according to CME Group's FedWatch program.

In midday trading on Tuesday, benchmark 10-year Treasury yields were down 3 basis points at 1.987%. They touched 1.974% last Thursday, the lowest since November 2016.

Growing tensions between Washington and Tehran have added safe-haven bids for Treasuries in recent days.

Active clients, which include market makers and hedge funds, increased their neutral position to 60% from 50% the previous week, the latest J.P. Morgan survey showed.

The share of active long positions hit parity with the share of active short positions on Monday, compared with a net long position of 30% a week ago.

Reporting by Richard Leong; Editing by Richard Chang

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