Investors add longer-dated Treasuries after U.S. jobs data -survey

NEW YORK Tue Jan 14, 2014 11:18am EST

NEW YORK Jan 14 (Reuters) - Investors raised their holdings of longer-dated Treasuries after news of surprisingly weak jobs growth in December which stirred doubts about the economic recovery, according to a survey released on Tuesday by J.P. Morgan Securities.

The share of investors who said on Monday that their holdings of longer-dated U.S. government debt were greater than their holdings of portfolio benchmarks rose to 19 percent from 13 percent a week earlier, J.P. Morgan Securities said.

By holding more longer-dated Treasuries, investors raise the duration, or interest rate, risk to their portfolios in anticipation of a market rally, which generally causes longer-dated bonds to generate larger gains than shorter-dated debt.

Conversely, longer-dated Treasuries would also raise the risk of greater losses than short-term bonds if bond prices fall.

On Friday, the Labor Department said U.S. employers added 74,000 jobs last month, the fewest in nearly three years. Analysts polled by Reuters had expected 200,000 or so increase.

The stunningly weak payroll figure spurred a rally in the U.S. bond market.

Treasuries' yields have risen on worries whether the Federal Reserve might speed up its pace of stimulus reduction and perhaps even raise short-term interest rates soon after it ends its third round of quantitative easing.

In J.P. Morgan's survey of its Treasuries clients, 64 percent said they were "neutral" in their duration on U.S. government debt, or owned longer-dated Treasuries equal to their benchmarks, down from 72 percent last week.

Seventeen percent of its Treasuries clients said they were "short" in duration of Treasuries, or owning fewer longer-dated Treasuries than the benchmarks against which their portfolios are gauged, up from 15 percent last week.

The share of "longs" exceeded "shorts" for the first time since late November. A week ago, the share of shorts topped longs by 2 percentage points, J.P. Morgan said.

In early Tuesday trading, benchmark 10-year Treasury yields rose 3 basis points to 2.85 percent after hitting a three-week low of 2.819 percent on Monday.

Among active clients, viewed as making speculative bets in Treasuries, 23 percent said they held more longer-dated Treasuries than their benchmarks, unchanged from last week, while 62 percent of active investors said their longer-dated Treasuries holdings matched benchmarks, up from 54 percent the prior week.

Fifteen percent of the active clients said they were short in duration versus their benchmarks, down from 23 percent last week. The latest figure was the lowest since Sept. 23.

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.