Investors most bullish on U.S. Treasuries in 2 months-survey

Tue Jan 15, 2013 10:17am EST

* Worries about U.S. debt ceiling fight feeds bids for bonds

* Most outright longs on Treasuries since November

* Active longs in Treasuries highest since early December

NEW YORK, Jan 15 (Reuters) - The number of investors who are bullish on U.S. Treasuries rose to the highest level in two months due to worries about a protracted fight in Washington over raising the debt ceiling, a survey released on Tuesday showed.

Investors seemed more concerned right now about another political standoff that hurts risk appetite, analysts said.

The United States scraped up against its $16.4 trillion debt ceiling on Dec. 31 and is now employing special measures to meet its financial obligations. The Treasury Department said those steps could be exhausted by mid-February. [ID: nL2N0AJDXD]

The prospect of no agreement on raising the debt ceiling could lead to scenarios including a default on U.S. bonds and downgrades of its credit rating, which then would reduce the longer-term appeal of Treasuries, analysts said.

But as of Monday, when J.P. Morgan Securities conducted its latest weekly Treasury client survey, the share of investors who were "long", or holding more Treasuries than their benchmarks, was 21 percent, rising from 19 percent the previous week,

The latest figure showed the most long investors since Nov. 13, 2012, the firm said.

The level of short positions in the previous survey conducted last Monday held steady at 15 percent.

The share of investors surveyed on Monday who said they were "neutral" on U.S. government debt, or holding Treasuries equal to their portfolio benchmarks, fell to 64 percent from 66 percent the previous week.

In addition to anxiety about a debt ceiling fight, traders sought longer-dated Treasuries to resell to the Federal Reserve which has been accumulating government debt in a bid to lower long-term interest rates to support the economy.

Benchmark 10-year Treasury notes were up 9/32 in price early Tuesday, yielding 1.815 percent, down 3 basis points from late on Monday. Last week, the 10-year yield climbed near 2 percent its highest level in eight months.

Within the survey, more active clients, including market makers and hedge funds, who are viewed as taking on speculative bets in Treasuries, expected Treasury yields to fall.

The share of longs among active clients jumped to 15 percent, the highest since Dec. 3, from 8 percent last week.

The share of shorts among active clients fell to 31 percent from 38 percent, while the share of neutral was unchanged at 54 percent.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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