Hedge Funds Ditch Treasuries in Droves?
A good deal of the recent flight from U.S. Treasuries has been driven by hedge fund selling, according to a Wall Street analyst.
Hedge funds and other large investors sold 78 percent of their holdings of 2-year Treasury note futures in the week ended March 13, said Bank of America/Merrill hedge fund analyst Mary Ann Bartels in a report released Monday.
Last week was the biggest weekly decline for U.S. Treasury prices since last summer. The big sell-off in government debt pushed yields to their highest levels in more than four months.
It was a sign investors see less need to put money in Treasuries for safekeeping now fears of a messy Greek debt default are fading and the U.S. jobs picture looks brighter.
Bartels, who aggregated investor positions from the Commitments of Traders report by the U.S. Commodity Futures Trading Commission, found that after the past week's selling in 2-years Treasury futures, hedge funds and large investors now own about $1.4 billion of those contracts. Just a week earlier, those big investors owned $6.4 billion of those future contracts, she said.
The move by hedge funds is corroborated by institutional investors including Jeffrey Gundlach of DoubleLine, Tom Sowanick of OmniVest Group LLC and Dan Fuss of Loomis Sayles.
Hedge funds are active traders of futures contracts tied to the price of Treasuries as it is a way for managers to bet on the future direction of bonds.
Prior to the recent reversal in the Treasury market, investors scooped up U.S. government debt as a safe haven. Going in to the sell-off, yields on U.S. Treasuries hovered around all-time record lows.
It was not just 2-year Treasury futures hedge funds were selling. The report also found money managers tripled their shorts - or bets against - 10-year treasury note futures to $7.7 billion from $2.3 billion.
Hedge funds and other investors also increased their shorts in 30-year treasury bonds to $4 billion from $1.3 billion one week earlier.
So where are hedge funds going if they're getting out of bonds? Risks assets, where else? Rodrigo Campos of Reuters reports, S&P within 10 percent of record high; Apple up on dividend plan:
The S&P 500 extended its rally on Monday to climb within 10 percent of its historic closing high, after Apple said it would pay a $10 billion annual dividend and buy back stock.
The benchmark index is now at its highest level since May 2008 and 10 percent below the record close of 1,565.15 set in October 2007.
"This is the type of thing that typically gets retail investors back in the market," said Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois.
Analysts have said a flow of retail investor money could fuel the next leg of the rally that has driven the S&P 500 up 12 percent so far this year.
Apple Inc (AAPL.O), the world's most valuable publicly traded company, rose 2.7 percent to $601.10 - marking the first time the stock has ended above $600 - and inching closer to a 50 percent gain this quarter. Apple, the maker of the iPad and the iPhone, said it will pay a dividend of $2.65 a share quarterly, starting in July, and also announced it will buy back $10 billion in stock, starting in the next fiscal year.
The announcement from Apple comes less than a week after major U.S. banks responded to the results of the Federal Reserve's stress tests by announcing bigger dividends and billions of dollars in stock buybacks.
These increases, alongside a steady stream of upbeat U.S. economic data, have cleared the way for more investment in stocks.
"You're getting initiations and increases in dividends, and people are starting to recognize there is nowhere else to go," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.
An S&P index of small-cap stocks .SML closed at an all-time high, while an index of midcap shares .MID, near their record high, confirmed the broad-based nature of the U.S. equities rally.
Financials were the second-best performing among the top 10 S&P 500 sectors, ranking only behind the tech sector. The S&P financial index .GSPF gained 0.6 percent.
The Dow Jones industrial average .DJI edged up 6.51 points, or 0.05 percent, to 13,239.13 at the close. The S&P 500 Index .INX gained 5.58 points, or 0.40 percent, to 1,409.75. The Nasdaq Composite .IXIC rose 23.06 points, or 0.75 percent, to 3,078.32.
UBS raised its price target for US Steel's (X.N) stock by almost 24 percent, attracting a blitz of investor attention, and the hard metal maker's shares jumped 6.4 percent to $31.64.
United Parcel Service Inc (UPS.N) rose 2.8 percent to $81.11 as it clinched a deal to buy Dutch peer TNT Express (TNTE.AS), making UPS the market leader in Europe.
Broadcom Corp (BRCM.O) gained 2.6 percent to $38.78 after the chipmaker said it won a preliminary injunction against Emulex Corp (ELX.N) in a patent infringement lawsuit.
On the economic front, U.S. homebuilder sentiment was unchanged in March, holding at its highest level since June 2007, while sentiment in February was revised lower.
About 6.5 billion shares changed hands on the New York Stock Exchange, the Nasdaq and Amex, slightly below the daily average so far this year of 6.9 billion shares.
Advancers outnumbered decliners buy roughly 9 to 5 on both the NYSE and Nasdaq.
I see broad-based strength in equity markets and a powerful rally developing. There are plenty of skeptics who think without QE3, this market is cooked. Rubbish, pure rubbish! All those waiting for the market to correct will just get more scared as we move into the second half of the year.
Finally, am I impressed with Apple's dividend? Absolutely not as I would never buy Apple or any tech company based on a dividend, especially one which isn't anything to write home about. I start getting worried when dividend fund managers are buying Apple. Pretty lame!
Below, John Maskell, managing director at BlackRock Advisors U.K. Ltd., talks about global fixed-income investment strategy. He speaks with Linzie Janis on Bloomberg Television's "Countdown."
Also, Bloomberg’s Trish Regan and Adam Johnson report on today’s ten most important stocks including UPS, Lions Gate Entertainment and Apple. If you think Apple is impressive, check out Priceline (PCLN). I can just kick myself for not following my advice back in early 2009!!
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