{"id":75716,"date":"2018-12-05T00:07:31","date_gmt":"2018-12-04T23:07:31","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/hedge-funds-agree-on-where-rates-are-going\/"},"modified":"2020-01-01T22:40:47","modified_gmt":"2020-01-01T21:40:47","slug":"hedge-funds-agree-on-where-rates-are-going","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/hedge-funds-agree-on-where-rates-are-going\/","title":{"rendered":"Hedge Funds agree on where rates are going"},"content":{"rendered":"

The confirmation of a changing Federal Reserve System\u2019s (“Fed\u201d) tone and hopes for a truce in the U.S. trade
\nstandoff both supported risky assets this week. Rates have been trending down since mid-November, in sync
\nwith a weakening pulse of global growth and escalating political risks in China and Europe. This week, the Fed
\nChair Jerome Powell shifted his stance, with rates considered being a \u201clong way\u201d from the neutral rate in October
\nto \u201cjust below\u201d from now on. The Fed\u2019s minutes were also dovish. While pointing to a hike in December, they
\nsuggest the Fed would be increasingly data dependent. With sovereign yields down 25 bps since midNovember,
\nmarkets are now expecting only two rate hikes in 2019, in addition to that of December\u2019s. <\/p>\n

The change of tone at the Fed is also being factored in hedge funds\u2019 portfolios.<\/p>\n

Overall, CTAs fully neutralized their short bond positions over the month of November. This was a fast
\nreshuffling, though executed with diverging regional positioning. They cut about a quarter of their U.S. bond
\nshorts, but they built up long bond positions both in Europe and Japan. We note that CTAs remain substantially
\nlong dollar against EUR, JPY, CHF, and GBP. They are also short in equities, especially in Europe and Japan.
\nCTAs fully cut their energy positions. <\/p>\n

Since the summer, Global Macro strategies generally made limited profits on bonds. A number of managers
\nwere expecting more Fed gradualism since the beginning of the fall, but generally positioned to that effect
\nprematurely. They recently recovered part of the losses made before rates peaked. Managers expecting a more
\nhawkish scenario saw a symmetrical profit pattern. Trading timing mattered more than the fundamental views.<\/p>\n

Both sides have now converged on bonds. We see limited short U.S. duration in portfolios in favor of more
\nrelative value positions. Outside of the U.S., Global Macro strategies currently hold meaningful UK cash futures,
\nand some strategies added long German duration to factor the weak European economic releases. We see
\nmore diverging stances in non-bond asset classes.<\/p>\n

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