November 6, 2018 / 2:51 PM / 9 months ago

Investors cut bearish bets on U.S. bonds before elections

NEW YORK, Nov 6 (Reuters) - Bond investors reduced their bearish bets on longer-dated U.S. government debt in advance of the U.S. congressional elections which may determine government policies and their impact of the economy, a J.P. Morgan survey showed on Tuesday.

The margin of investors who said on Monday they were “short,” or holding fewer Treasuries than their portfolio benchmarks, over those who said they were “long” or holding more Treasuries than their benchmarks, contracted to 4 percent from 8 percent, according to the survey.

Latest polls showed Democrats are favored to pick up the minimum 23 seats they need to obtain a majority in the House of Representatives, enabling them to stymie Trump’s legislative agenda and investigate his administration.

Election forecasters expected Republicans to hold their slight majority in the Senate, currently at two seats, retaining the power to approve U.S. Supreme Court and other judicial nominations on straight party-line votes.

Some 23 percent of investors surveyed said they were short longer-dated bonds, the lowest in six weeks and down from 25 percent the week before.

The share of investors who said they were long Treasuries rose to 19 percent from 17 percent last week.

The share of investors who said on Monday they were neutral, or holding Treasuries equal to their portfolio benchmarks, held at 58 percent, which is the highest level since July 23, J.P. Morgan said.

Benchmark 10-year Treasury yields was 3.199 percent in early Tuesday trading, up from 3.087 percent last week. On Oct 9, it reached 3.261 percent, the highest since May 2011, Refinitiv data showed.

A month ago, investors dumped Treasury holdings on worries about growing Treasury supply, rising inflation and a faster pace of interest rate increases from the Federal Reserve, propelling a surge in bond yields.

Subsequently, the bond market recovered on safe-haven demand stemming from a global stock market rout.

Reporting by Richard Leong; Editing by Bernadette Baum and David Gregorio

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