* Total "longs" fall from 5-month high in latest week
* Net "longs" drop most in over two-years-JPMorgan
* No active clients long bonds before Treasuries auctions
NEW YORK, June 25 Investors curtailed their
positions in longer-dated U.S. Treasuries holdings in the latest
week, after the Federal Reserve signaled it might reduce its
bond purchases later this year if the economy shows further
improvement, according to a survey released on Tuesday.
The change came as the U.S. Treasury Department was slated
to sell $99 billion in short- and medium-term debt this week,
starting with a $35 billion auction of two-year notes at 1 p.m.
J.P. Morgan Securities, which conducted the survey, said 6
percent of its Treasuries clients said on Monday they were
"long" in their duration on U.S. government debt, or they owned
more longer-dated Treasuries than their benchmarks, down from 19
percent a week earlier.
Last week's share of longs was the highest in five months.
By holding more longer-dated Treasuries, investors add
duration or interest rate risk to their portfolios in
anticipation of a market rally when longer-dated bonds generate
higher returns than shorter-dated debt.
However, prices of longer-dated Treasuries plummeted and
their yields rose sharply after Fed Chairman Ben Bernanke last
week outlined the approach the central bank might take to reduce
its current $85 billion monthly purchases of Treasuries and
mortgage-backed securities, known as QE3.
Bernanke's remarks further roiled financial markets, which
had already been rattled by his testimony before a congressional
panel on May 22, in which he hinted at the possibility of less
At a press conference last week, Bernanke drew the
distinction between less stimulus due to the Fed's buying fewer
bonds and the tightening of monetary policy through raising
short-term interest rates - which he said will unlikely occur
even well after the Fed stops buying bonds.
On Monday, benchmark 10-year Treasury yields
rose to 2.667 percent, the highest level in more than 22 months,
according to Reuters data.
In J.P. Morgan's latest survey, 24 percent of its Treasuries
clients said they were "short" in their Treasuries duration, or
own fewer longer-dated Treasuries than their benchmarks, up from
15 percent a week earlier.
Bond yields continued to rise on Tuesday as investors shed
more of their longer-dated debt holdings in response to
stronger-than-expected data on durable goods orders, new-home
sales and consumer confidence.
The share of "shorts" exceeded "longs" by 18 percentage
points in the latest week, compared with a week ago when longs
exceeded shorts by 4 points, J.P. Morgan said.
The was the biggest decline in net longs in more than two
years, it said.
The share of investors who said they held Treasuries equal
to their benchmarks rose to 70 percent from 66 a week earlier.
Among active clients, who are viewed as making speculative
bets in Treasuries, 62 percent said their longer-dated
Treasuries holdings matched their benchmarks, down from 77
percent the prior week.
The survey showed no active "longs," which has not happened
since late March. This compared with 15 percent in the prior
Thirty-eight percent of active clients said they were short
in duration versus their benchmarks, up from 8 percent a 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.