Most net shorts in long-dated U.S. bonds since May-survey

Tue Apr 22, 2014 9:30am EDT

* Share of "long" investors stabilizes in latest week

* More than half of active clients short long-dated bonds

NEW YORK, April 22 (Reuters) - The difference between the share of investors who are short longer-dated Treasuries than those who are long increased to its highest level in about 11 months in the latest week, according to a survey released on Tuesday by J.P. Morgan Securities.

The share of "short" investors exceeded the share of "long" investors by 23 percentage points on Monday, up from 21 points last week. This was the most since May 28, 2013, the firm said in a statement.

This growing "net" short, which rises with bearish sentiment on bonds, comes in advance of the Treasury Department's scheduled $96 billion sales of coupon-bearing debt, which will begin with a $32 billion auction of two-year Treasuries notes at 1 p.m. (1700 GMT).

Benchmark Treasuries yields ended higher last week at 2.71 percent in the wake of upbeat data on jobless claims and regional factory activity.

Safe-haven demand for U.S. government debt also retreated last week after the United States, Russia, Ukraine and the European Union called for an immediate halt to violence in eastern Ukraine, although conflict between the government military and pro-Russian fighters have continued.

The share of investors who said on Monday their holdings of longer-dated Treasuries were below the level in their portfolio benchmarks rose to 34 percent from 32 percent last week.

By holding fewer longer-dated Treasuries, investors reduce the duration or interest rate risk of their portfolios in anticipation of a market drop, which generally causes longer-dated bonds to generate bigger losses than shorter-dated debt.

Conversely, longer-dated Treasuries produce higher returns than short-term debt in a market rally.

The share of investors who said their holdings of longer-dated U.S. government debt were greater than the holdings in their portfolio benchmarks held at 11 percent for a second week, J.P. Morgan Securities said.

Among active clients, viewed as making speculative bets in Treasuries, none for a second week said they held more longer-dated Treasuries than their benchmarks.

Fifty-four percent of the active clients said they were short in duration versus their benchmarks, up from 46 percent last week. This was the widest gap between active shorts and longs since Feb. 13, 2013, J.P. Morgan said.

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)

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