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More investors cautious on Treasuries yields as Fed awaited: survey
July 30, 2013 / 4:32 PM / 4 years ago

More investors cautious on Treasuries yields as Fed awaited: survey

NEW YORK (Reuters) - More investors turned cautious on the outlook for yields on U.S. Treasuries in the latest week as they await a policy statement from the Federal Reserve that could offer indications of when the Fed will begin to reduce its bond purchases, a survey released on Tuesday showed.

The share of investors who said on Monday they held U.S. government debt equal to their portfolio benchmarks rose to 72 percent from 64 percent a week earlier, J.P. Morgan Securities, which conducted the survey, said.

Wall Street economists in general expected that the U.S. central bank, at the close of its two-day policy meeting on Wednesday, could telegraph its intention to scale back its current $85 billion monthly purchases of Treasuries and mortgage-backed securities at its September policy meeting.

While investors have digested the likelihood that the Fed will pare back on its bond-buying program, known as quantitative easing, to support the U.S. economy, they have been grappling with just how long the Fed will hold short-term interest rates near zero when it does stop buying bonds.

The Federal Open Market Committee, the central bank’s policy-setting group, will release a statement at 2 p.m. (1800 GMT) on Wednesday.

In early Tuesday trading, benchmark 10-year Treasury yields were little changed on the day at 2.599 percent, which was about 17 basis points below the 23-month high set earlier this month, according to Reuters data.

As for the positioning of J.P. Morgan’s other Treasuries clients, 17 percent said they were “long” in their duration on U.S. government debt, or owned more longer-dated Treasuries than their benchmarks, down from 23 percent last week.

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.

Investors also were influenced by expectations that the U.S. Treasury Department will signal it could pare its sales of short-dated debt later this year as the federal government’s borrowing needs have fallen on higher tax receipts.

Less supply would support shorter-dated debt prices and make longer-dated paper relatively less attractive, analysts said.

In J.P. Morgan’s latest survey, 11 percent of its Treasuries clients said they were “short” in duration of Treasuries, or owning fewer longer-dated Treasuries than their benchmarks, down from 13 percent from a week earlier.

The share of “longs” exceeded “shorts” by 6 percentage points in the latest week, compared with 10 points last week, J.P. Morgan said.

Among active clients, viewed as making speculative bets in Treasuries, 92 percent said their longer-dated Treasuries holdings matched benchmarks, up from 77 percent the prior week.

The latest total on active “neutrals” was the highest since August 22, 2011, J.P. Morgan said.

No active investors said they held more longer-dated Treasuries than their benchmarks, down from 15 percent a week earlier, while 8 percent said they were short in duration versus their benchmarks, unchanged from 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 Leslie Adler

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