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By Maiya Keidan
July 21 (Reuters) – Some hedge funds are maintaining their bets against Treasuries, even after a strong rally in US government bonds hurt bearish investors earlier this week.
Leverage funds were net short over several longer maturities of treasury bills in the futures markets, the latest data from the Commodity Futures Trading Commission showed last week.
This has potentially made them vulnerable to the bond rally, as some market participants ditched so-called reflation trading fearing a slowdown in US growth in the second half of the year.
New data due on Friday could offer a more complete picture of the extent to which surging Treasury prices, which move inversely to yields, rocked bearish investors. Yields on the benchmark 10-year Treasury index stood at around 1.29% on Wednesday night, rebounding from a low just below 1.13 reached earlier this week. They peaked at over 1.77% earlier this year.
Some hedge fund managers, however, believe there is more room for reflation trading, which has seen investors cram into bearish bets on the Treasury and stocks of companies that would benefit from a strong rebound in the market. American growth.
Factors behind the bearish outlook on Treasuries include expectations of persistent inflation, skepticism about the significant impact of the Delta variant of COVID-19 on growth, and expectations that the Federal Reserve will begin to unwind its easy monetary policies sooner than expected.
“The consensus is that the current yield levels are just too low for the level of inflation that we have… and it doesn’t really look like the hedge funds have exhausted their positions,” said Troy Gayeski, partner and co- chief investment officer. SkyBridge Capital, a US-based fund of hedge funds with $ 7.5 billion under management.
Hugo Rogers, who oversees $ 1 billion of multi-asset discretionary portfolios and a long-short hedge fund as chief investment officer of Deltec Bank and Trust, enjoyed substantial returns on his bearish bets on the Treasury when returns fell. climbed earlier this year.
More recently, however, reflation trading “has been a bad place to be,” he said.
Still, Rogers maintains its bearish bets, expecting the benchmark 10-year Treasury yield to exceed 2% as inflation persists longer than markets seem to expect.
“We don’t think the Delta variant or the tapering will be enough to derail growth or inflation,” he said.
A London-based hedge fund manager told Reuters that a short position in US Treasuries cost the company around 60 basis points, but his fundamental view remained that yields would eventually rise by now. the end of the year.
“The reflation trade is very far from over,” the manager said, adding that an expected acceleration in US debt issuance in October could push up yields.
“I think the regime change story still holds,” said Robert Sears, chief investment officer at Capital Generation Partners.
“Next year we expect rates to rise in what appears to be a positive environment for growth, and I think that’s the rationale most managers maintain.”
Others are holding back from commenting on the direction of Treasuries.
Edouard de Langlade, chief investment officer of Swiss macro hedge fund company EDL Capital, avoided fixed-income markets, believing the Fed would maintain an accommodative stance longer than expected.
“Right now you just can’t go long in the fixed income market because there is no value, and going short has been a very painful trade recently, so we are sitting on the sidelines.” (Reporting by Maiya Keidan; Additional reporting by Ira Iosebashvili; Editing by Richard Chang)