Investors stay neutral on Treasuries after payrolls: JPM survey

NEW YORK Tue Aug 6, 2013 12:49pm EDT

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NEW YORK (Reuters) - Most investors clung to their outlook on the direction of U.S. Treasuries yields after a disappointing July payrolls report did little to shift expectations the Federal Reserve might pare its bond purchases later this year, a survey released on Tuesday showed.

The neutral outlook came in advance of this week's U.S. government debt sales of $72 billion. The majority of the proceeds will be used to repay investors on maturing government debt they own, with only $2.4 billion of new cash being raised for the federal government.

The share of investors who said on Monday they held longer-dated U.S. government debt equal to their portfolio benchmarks dipped to 70 percent from 72 percent a week earlier, J.P. Morgan Securities, which conducted the survey, said.

"The all clients survey shows flat net positioning," it said of the latest survey results.

Of J.P. Morgan's other Treasuries clients, 15 percent said they were "long" in their duration on U.S. government debt, or owned more longer-dated Treasuries than their benchmarks, down from 17 percent last week.

Fifteen percent of its Treasuries clients said they were "short" in duration of Treasuries, or owning fewer longer-dated Treasuries than their benchmarks, up from 11 percent from a week earlier.

By holding fewer longer-dated Treasuries, investors trim duration, or interest rate, risk to their portfolios in anticipation of a market sell-off, when longer-dated bonds generate bigger losses than shorter-dated debt.

The share of "longs" matched "shorts" in the latest week, compared with a week ago when the share of longs exceeded the share of shorts by 6 percentage points, J.P. Morgan said.

The balance between longs and shorts in the survey seemed consistent with the rise in Treasuries yields on Monday due to surprisingly strong data on the U.S. services sector following a drop on Friday in reaction to data that showed a lower-than-forecast 162,000 in net U.S. jobs created in July.

In early Tuesday trading, benchmark 10-year Treasury yields ticked up 1 basis point to 2.654 percent, according to Reuters data.

Among active clients, viewed as making speculative bets in Treasuries, 77 percent said their longer-dated Treasuries holdings matched benchmarks, down from 92 percent the prior week - which was the highest since August 22, 2011.

Eight percent of active investors said they held more longer-dated Treasuries than their benchmarks, up from zero last week, while 15 percent said they were short in duration versus their benchmarks, up from 8 percent the previous week.

J.P. Morgan surveys 40 to 60 of its Treasuries clients weekly, of which 60 percent are fund managers, 25 percent are speculative accounts, and 15 percent are central banks and sovereign wealth funds.

It asks 10 to 20 of its active clients each week about their Treasuries holdings, of which 70 percent are speculative accounts and the rest are money managers.

(Reporting by Richard Leong; Editing by Chris Reese)

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