US Bonds Gain as Tech Stocks Fall; Hedge Funds Bet Against Treasuries
Translated & summarized from Bizportal by baba
US Treasury bonds gained last week as investors shifted from falling tech stocks like the Nasdaq, which dropped 4.5%. The 10-year Treasury yield fell to 5.09% as bond prices rose, with the TLT ETF up 2.7%. This move contrasts with earlier trends where yields hit multi-year highs due to Fed rate hikes and the US deficit. Hedge funds remain heavily short Treasuries, while asset managers are long, raising concerns about market stability.
The story in 7 lines · by baba
- US Treasury bonds gained last week as tech stocks like the Nasdaq fell by 4.5%.
- The 10-year US Treasury yield decreased to 5.09% from 5.24% the prior week.
- Hedge funds held a net short position of about 2.2 million contracts on 10-year Treasuries.
- Asset managers held a net long position of about 2.9 million contracts on 10-year Treasuries.
- The Federal Reserve's rate hikes and the US deficit contributed to rising yields this year.
- Concerns about market stability were raised by Bank of England and IMF officials.
- Israeli pension funds are impacted by US Treasury yield fluctuations through foreign holdings.
US Treasury bonds saw increased demand last week as investors moved money out of declining technology stocks. The Nasdaq composite index fell approximately 4.5% and the S&P 500 dropped about 2%. This shift led to a decrease in yields for US government bonds; the 10-year Treasury yield fell to 5.09% from 5.24% the previous week, and the 30-year yield decreased from 5.60% to 5.43%. As yields fall, bond prices rise. The TLT ETF, which tracks long-term US Treasury bonds, increased by about 2.7% last week.
Earlier in the month, the trend was reversed, with the 10-year yield reaching a high of 5.31%, its highest level since 2002. This year's rising yields are attributed to factors including the Federal Reserve's September interest rate hike of a quarter percentage point to a range of 3.75% to 4%, and the significant US government deficit. Despite the recent recovery, a large portion of the market remains positioned for further yield increases.
Data from the US Commodity Futures Trading Commission indicates that hedge funds and other leveraged entities held a net short position of approximately 2.2 million contracts on 10-year Treasuries last week, equivalent to about $220 billion. Asset managers, including pension and mutual funds, hold a net long position of about 2.9 million contracts.
Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, noted that the growing presence of funds in the bond market increases the likelihood of widespread shocks. The International Monetary Fund (IMF) warned in a recent financial stability report that global hedge funds hold about $13 trillion in assets, more than triple their 2013 volume, and cautioned that leverage and crowded positions could lead to synchronized selling during a crisis.
In Israel, the impact is primarily felt through long-term savings. Pension and provident funds hold foreign bonds and stocks, and even small fluctuations in US Treasury yields affect the value of long-term bonds in their portfolios. ETFs tracking long-term US Treasury bonds traded in Israel generally move with the TLT, adjusted for the dollar-shekel exchange rate.
Trading in US bond and index futures is set to open early Monday morning Israel time, coinciding with the start of the Asian trading week. The ongoing earnings season on Wall Street, particularly for major technology companies, is also expected to influence bond demand.