Fed survey shows hedge funds leveraged up to buy stocks

WASHINGTON Mon Jul 8, 2013 2:01pm EDT

WASHINGTON (Reuters) - Hedge fund investors were recently borrowing aggressively to fund stock bets relative to their strategies since the financial crisis, a Federal Reserve survey showed on Monday.

The Fed's Senior Credit Officer Survey showed one in five respondents reported hedge fund client's leverage, a measure of the amount of debt used to make financial bets, was near its highest level for equity-oriented funds since a pre-crisis peak.

The survey, which supplements data on the banking sector by querying dealers from funding markets for asset-backed securities and over-the-counter derivatives, was conducted between May 21 and June 3, and gives some insight into the degree to which low borrowing costs have fueled a U.S. stock market boom.

However, borrowing costs have recently risen due to signals from the Fed that it could begin easing back on its monetary support this year.

The Standard & Poor's 500 stock index, which has more than doubled in the last four years, has given up over 1 percent since late May.

The Fed's aggressive monetary easing, which currently entails monthly purchases of $85 billion in Treasury and mortgage securities, is in part aimed at pushing investors to take on more risk to spur economic growth.

(Reporting by Jason Lange; Editing by Andrea Ricci)

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