October 13, 2010 / 2:15 PM / 9 years ago

Investors see bond rally lasting as Fed buy looms

NEW YORK, Oct 13 (Reuters) - More investors see U.S. Treasuries prices rallying further as expectations grow that the Federal Reserve will soon start another round of monetary stimulus, a poll released on Wednesday showed.

The share of investors who said they are “long,” or owning more Treasuries than their portfolio benchmarks, increased to 31 percent on Tuesday, up from 27 percent a week ago, JPMorgan Securities said.

This level of investor optimism on Treasuries is within striking distance of the 33 percent-level set two weeks earlier, which was the highest since Oct 13, 2009.

Investors have been snapping up government debt since Fed Chairman Ben Bernanke hinted he is open to further policy accommodation to help the economy. Last week benchmark Treasury yields fell to their lowest levels since January 2009.

On Tuesday, the U.S. central bank released minutes of its September policy meeting, where officials expressed concerned over the sluggish pace of growth and discussed ways to offer further stimulus “before long.” [ID:nN12191658]

The minutes reinforced expectations that the Fed will announce at it November policy meeting that it will engage in a second round of quantitative easing, which traders dubbed “QE2.”

Investors reckon QE2 will largely involve more purchase of U.S. government debt after the Fed bought $1.725 trillion in Treasuries and mortgage-related securities when it first adopted unconventional tools in late 2008 to combat the global credit crisis.

Analyst estimates of the amount the Fed will buy have ranged widely from $500 billion to $1.5 trillion with an emerging view that the kick-off will be gradual.

According to the latest JPMorgan survey, the share of investors with a “neutral” stance, or owning Treasuries equal to their portfolio benchmarks slipped to 55 percent from 57 percent in the previous week.

In the latest week, the share of investors who were “short,” or owning less Treasuries than their portfolio benchmarks, fell to 14 percent from 16 percent a week ago.

The share of “longs” made up by active clients, including market makers and hedge funds, rose to 4 percent from 2 percent the previous week. The amount of active clients who were “neutral” fell to 7 percent from 9 percent, while the share of active clients who were “short” remained unchanged at zero.

Early Wednesday, the yield on benchmark 10-year Treasury notes US10YT=RR edged up 3 bps to 2.46 pct after falling to close to a 20-month low last week. (Reporting by Richard Leong; Editing by Padraic Cassidy)

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