Investors pare Treasuries holdings in week: survey

NEW YORK Tue Oct 2, 2012 10:17am EDT

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NEW YORK (Reuters) - Investors reduced their holdings of U.S. government debt on expectations Spain is ready to ask for a full-blown bailout that would contain the region's festering debt crisis and avert a further economic slowdown, a survey released on Tuesday showed.

The share of investors who said on Monday they were "long" on Treasuries, or holding more federal debt than their portfolio benchmarks, fell to 17 percent from 25 percent the prior week, J.P. Morgan Securities said on Tuesday in its weekly Treasury client survey.

Last week's level of long positions was the highest since July 23, according to the firm.

Investors likely pared their Treasuries holdings on the perception that bonds reached fair value after benchmark yields touched four-month highs in mid-September, analysts said.

The yield on 10-year Treasury notes last traded at 1.639 percent, up 2 basis points from Monday but down from 1.894 percent on Sept 14, the day after the Federal Reserve announced its third round of large scale bond purchases. This program, known as QE3, spurred worries that more stimulus in an attempt to lower unemployment now would make it harder for the Fed to contain long-term inflation.

In the latest J.P. Morgan survey, the share of investors who were "short", or holding fewer Treasuries than their benchmarks, rose to 15 percent from the previous week's 9 percent.

Net longs, or the difference between longs and shorts, shrank to their smallest since July 30, J.P. Morgan said.

The share of investors who said they were "neutral" U.S. government debt, or holding Treasuries equal to their portfolio benchmarks, climbed to 68 percent from 66 percent last week.

In the latest survey, active clients who are viewed as taking on speculative bets in Treasuries showed significant shifts in their bond positions from last week.

Active clients include market makers and hedge funds.

The share of these investors who said they were long Treasuries dropped to 15 percent from 39 percent the previous week.

The percentage of active traders who were short rose to 23 percent from 15 percent last week.

It was the first time since Aug 20 that there were more active clients who said they were short Treasuries than those who said they were long, J.P. Morgan said.

The share of active clients who owned Treasuries equal to their benchmarks jumped to 62 percent from 46 percent the prior week.

(Reporting by Richard Leong; Editing by Chizu Nomiyama)

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